Part of a series on essential actions you need to take
One of the biggest tax assessments your company will experience probably won't be from the IRS. It'll be sales and use tax. Here are some reasons:
1. Your professionals (your CPA and lawyer) know about income taxes. And they are constantly giving you, or at least anxious to give you, advice about your income tax strategy, planning, avoidance, etc. They learned about income taxes in school. And they've probably got letters after their names certifying that they're experts at income taxes.
2. Those same professionals, in all probability, learned absolutely nothing about sales and use taxes in school. It's not their fault. Very view schools even offer courses in sales and use taxes.
3. Those same professionals, when they go to continuing education conferences, rarely go to the break-out sessions on sales and use taxes. Again, it's not their fault. The conference probably didn't offer any sessions on sales and use taxes. And those professionals do need to know about income taxes.
4. Therefore, based on items 1-3, your professionals probably know nothing about sales and use taxes, other than what everyone else knows. They may be able to prepare a sales and use tax return, but that really doesn't mean they know the kinds of things that I talk about on this blog. They don't know what they don't know. Because they never got any training. It ain't their fault!
5. Therefore, you're not getting good advice, if you're even getting advice.
6. So when the auditing gods decide who will get assessed, the IRS god will not be able to surprise you. You've been getting advice. You may get nailed for some taxes, but it's likely to be something that you were kind of expecting. Your professional said, "Mary, this is kinda edgy, but I'd suggest treating the transaction this way. If the IRS catches it, and they argue that it's taxable, we can decide at that point whether to fight it or not." In other words, no surprise.
7. But when the sales tax god decides to send her minions in to make your life miserable, you won't have had that conversation with your professionals. In fact, their response will probably be something like, "Gosh, that's taxable? Huh. Learn something new every day." And privately, they're thanking the professional liability god that you never asked them any questions, and/or they didn't put any answers to you in writing.
8. The moral of the story? Your professionals don't know. And if you're hoping they're going to be providing you guidance for sales and use taxes like they've done for income taxes, you're in for a rude awakening. They don't know what they don't know because they never learned about it.
And neither do you.
I've probably managed to offend every tax lawyer and CPA in the country with this one. Please keep in mind that there ARE some professionals out there who DO go to the break-out sessions, who DO subscribe to the newsletters, tax databases, buy the books, etc. In fact there are some that actually have a practice of sales and use taxes.
Here's another fact to keep in mind. I was glancing through a paper copy of a sales and use tax newsletter about a year ago. One of the major ones. Know how many subscribers they had? 800. For the entire country! 800! That means less than 20 per state. And probably half of those newsletters went to large companies who learned that they didn't know what they didn't know.
It doesn't bode well. Ask your professional which sales tax publications and newsletters they use.
Here's another one. Know what type of company often gets hit with use tax assessments? Law firms and CPA firms. Most businesses kind of figure this one out because there's a line on the sales tax return about paying use taxes on out-of-state purchases. But since professionals don't fill out a sales tax return for their own business (they don't provide taxable services in most states) they don't 't know they have to pay that use tax.
They didn't know what they didn't know.
Read this blog. Review my articles on tax traps. Join our events. Read some books. Go to seminars. Find a professional who knows about this stuff and get some good advice. Here's where you can find more information.
Find out what you don't know. Then you can ask some questions.
Sales Tax Guy