Wednesday, December 23, 2009

Check the Cash

In this whole series, I discuss the problem of mistakenly not charging taxes on your sales. I will continue to show you situations where the business got hammered for the sales tax when they didn't even know they were making taxable sales.

But the question that I just don't get often enough is, "How can we make sure we've addressed every sale we should be taxing?" Really, I don't get that question enough. So, even though you're not asking it, I'll give you a suggestion.

You should, annually, quarterly, monthly or on whatever cycle you feel is appropriate, analyze where your cash is coming from. Your accounting people already do this in a macro kind of way through the "cash flow" statement. But I'm talking about analyzing it from a very different, and more detailed perspective. It's not foolproof, but if you do this and can show the auditor you do this, it certainly will show you're making the effort. Which is nice.

Look at every deposit of cash to your bank account, and review the transactions that generated that cash. You need to know if it's a sale, and if it should be taxed.

This would include your normal day-to-day sales, which you should be doing anyway. Right? But it would also include any service sales, equipment transfers, non-line-of-business transactions, like the company cafeteria or occasional sales, and maybe even intercompany transactions. Anything that generated money.

The starting point is the cash that's coming into your company and where it is coming from. The odds are pretty high that any taxable sales you make will appear, at some point, as a cash receipt.

Is this a lot of work? Heck, yeah. Maybe that's why nobody asks about this. But I can see this being the perfect summer intern project. Or something for the newbie.

The Sales Tax Guy

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