Tying in with the item from a couple of days ago, what do you do if the vendor has incorrectly charged you tax, and you discover it after you've paid. You want your money back, I presume.
The best way to avoid this problem is to have good AP procedures in place to avoid improper payment of taxes. But let's assume that you don't.
One easy way to get your money back is to simply take it as a deduction or debit memo on your next payment to the vendor. This works if you still owe them money. But then you're going to have problems with the vendor who now wants HIS money back. Depending on how interested you are in keeping this vendor happy, will affect whether or not this is an operative technique.
OR you can ask for your money back (a refund). This will require you to demonstrate to the vendor how they incorrectly collected taxes from you. This conversation will have to go higher than whomever you normally talk to in the billing or receivables department. Unless it's really a mechnical problem, this issue is way beyond them. You're going to have to talk, probably, to the vendor's controller, CFO, possibly even their lawyer.
There are two problems with getting the vendor to cough up the money.
Firstly, they don't believe you. All they know about sales and use tax is what they've been told. So you're gonna have to 'splain it to them. See above.
Secondly, they don't want to give you the money back because then they have to get the money back from the state. That presents a cash flow problem for them because they usually can't get a refund from the state UNLESS they have ALREADY refunded it to the customer. And then the state is likely to audit them. Most states see a substantial request for credit or refund as an invitation to an audit. And since nobody likes being audited, the vendor has got even more reason to be reluctant to refund the money to you.
So what do you do?
Most states take the position, either officially or informally, that the only person they'll refund overpaid taxes to is the person that wrote them the check in the first place, which means the vendor. So you're stuck. You need to get the vendor to cooperate. But what if, as mentioned above, the vendor resists?
If the vendor won't cooperate, then advise the vendor that you will go directly to the state for the refund. I'd suggest you state this formally, in writing, possibly on your lawyer's letterhead. Some states WILL refund your money if the vendor won't cooperate, goes out of business, is bankrupt, etc. But it's tough. And even if the state won't refund the money to you, the threat of going to the state (and thereby opening up the vendor to the aforementioned audit) may break up the logjam.
This, by the way, is a pretty relationship-destroying approach. And may even subject YOU to an audit. I'd suggest talking to everyone concerned before using this strategy.
(Sigh) Sounds like a pretty rotten situation. Yep, it is. The best way to solve this problem is, as mentioned at the top of this article, to develop procedures to that catch overpayments before they go out the door. We've talked about some of these already on this blog, and we'll talk about more in the future. Stay tuned.
Sales Tax Guy
And, of course, note the disclaimer