Dealing with the Home Office

A recent webinar participant had a couple of complicated questions, so we made a phone-date to chat when I knew I would be spending an hour or so in a Chicago rush hour.  So, while I was in the warm embrace of traffic, we talked sales tax. 

Warning, the language gets a tiny bit crude a little later.  Just letting you know in case you have delicate sensibilities.

A problem she was having that ran through all of her questions was the problem of dealing with her corporate office.  She was kind of the chief-cook-and-bottle-washer in the office at a branch location of a much larger (though not gigantic) company.  She had grown so frustrated at the inconsistent guidance she was getting that she decided to sign up for all four of our webinars.  Yay for her!

The conversation eventually evolved to talking about what she could do to solve the problem with corporate.  Before I tell you the answer I gave her, let me put a different disclaimer than usual here: there's a reason I finally decided to start my own company.

I have spent years in the corporate world and years presenting seminars on regulatory issues (like sales and use taxes).  I have heard this complaint more than a few times. I gave her this precious bit of wisdom:

"These problems are above your paygrade."

Folks, I want you all to learn about sales and use taxes.  I want you to care about sales and use taxes.  I want you to care about your company.  And your company should want these things too.  But if, once you've learned, they refuse to listen to you, then relax.  This problem has now sailed WAY above your paygrade (but you can still be smug knowing you're better informed about sales and use taxes than they are).

See, if you're at the right paygrade, then when you complain, people will listen to you.  And they may change things.  They may do it grudgingly, but they'll at least pay attention and give you explanations.  But if they won't do that; if they pretty much ignore your concerns, or respond in a blow-you-off kind of way, than the issue is above your paygrade.  Simple.  They've just told you in their own special way.

But that doesn't make you feel that much better, does it?  Because when it all blows up, you're still gonna get in trouble, right?

Email is a wonderful thing because it solves a problem that I had back in the day.  Back then, pre-email, we had to write "cover your ass" memos whenever we felt that an issue we had raised had been ignored.  So we wrote something like, "in regards to the meeting we had today on the Johnson Project, I just want to confirm that you said that I should just forget about it."  And our bosses would immediately spot that as a CYA memo.  This was not a career enhancing move, but was usually the only thing we could do that would get us off the hook when the proverbial poop hit the fan. 

Today, you kids have email.  So you probably haven't even HAD a meeting.  You've been exchanging emails with your boss that document the entire Johnson Project conversation.  So when someone starts chucking poop, you've got cover.

So make sure you raise the issues via email, then go home at 5 and watch The Simpsons.  Relax.  Then go back to work in the morning, ready to face the bright new day, with a song in your heart, and ready to deal with some fascinating new sales tax issue. 

And if you're corporate, listen!  Those people may actually know more about it than YOU do.  And if they won't listen to YOU, then it's obviously above your paygrade too.

You see, what it comes down to is that if they don't listen to you and respect your opinion, then you obviously don't need to worry about it anymore.

Now I know that some of you more responsible readers are going to still take ownership of the problem and want to solve it for the good of the company.  And that's admirable and I don't want to discourage this.  So please learn and try to solve the problems.  But I don't want you to get ulcers and migraines from the frustration of dealing with people that don't care as much as you do.  I have the ulcers to prove it. 

At some point in time, go home and watch the Simpsons.  

As I said, there's a reason I am out of that world. 

And just to show you how hip I am, feel free to watch Family Guy too.

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The Sales Tax Guy
http://salestaxguy.blogspot.com

Don't forget our upcoming seminars and webinars.
http://www.salestax-usetax.com/
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Illustrations and Parables: The Mystery of the Missing Texas Taxes

I was doing only my second seminar EVER on sales and use taxes. It was Manhattan and this woman comes up to me at the first break. I had talked about personal liability of officers in the previous section and she looked worried.

"Hi, I just started as the CFO for a company here in New York, and I found out that we've been selling a lot of stuff to a company in Texas for years, and charging them sales tax. But we haven't been filing Texas sales tax returns."

"Well, that's not the end of the world," I said. "Mistakes happen. I assume you have been remitting that money to the state of New York?" That's typically the way it works. Many people make the error of charging tax for deliveries in a remote state, but report those sales on their local return. Nobody's going to jail for that. Penalties and back taxes, yes. Striped pajamas? No.

"Well, actually, we haven't paid the taxes to anyone," she said. "That's how I found the problem. I was going through the general ledger and came across this account for Texas Sales Taxes Due."

"How much is in there?"

"One hundred and fifty-three thousand dollars."

My wife tells me I don't hide my emotions well. I must not have in this situation because she asked me, "Is this bad?"

"OK, let me make sure I understand this. Your employer has been shipping stuff to a company in Texas for a long time?"

"Yes, about eleven years."

"And they have been charging Texas taxes. And showing this on the invoices?

She nodded, "Yes, I looked at some of the recent invoices and they show 'sales tax' right on the invoice. It looks like the Texas rate too."

"Are they still doing this? Making sales to Texas, charging tax and letting it sit in that liability account?"

"Yes."

"Just out of curiosity, is this a small, entrepreneurial company where the owners have put pretty much everything into the business?"

"Yes."

"Hundred and fifty thousand?"

"Yep."

"And you haven't paid this money to Texas, or even New York, right?"

"Right." I really do remember this conversation like it was yesterday. It's firmly planted in my brain.

"OK. Final question. Are you really the CFO or is that just the title they gave you?" This happens, folks. They might have given her the CFO title, but not actually make her an officer of the company. I once was a "sort-of" CFO.

"Yes, in fact we just took care of the paperwork last week."

I took a deep breath. "Mary," her name was Mary, did I mention that? "You should probably leave the seminar now. You've learned enough for the day. I'd strongly recommend that you get this resolved, and you should talk to your own attorney. You're an officer of the company. Even though you weren't around when all of this happened, the longer you're on board, knowing what's still going on, the more likely you're going to be in deep trouble. You may wind up holding the bag."

The problems are:

1. The customer gets audited by Texas who discovers that they've paid all this tax to a company who wasn't registered in Texas. Texas makes the customer pay the money all over again, plus interest and taxes. The customer probably has a good case for fraud against Mary's company. They charged them tax and didn't remit it to any state. For eleven years!

2. Texas may decide to go after Mary's company, particularly if they had nexus in Texas. I didn't ask Mary about Nexus.

I've read more than a couple of stories where, in a start-up situation, the owners put their life-savings into the business, and then some. When the business fails, they've got nothing to make good on debts - like a sales tax liability in Texas.

But the CFO probably doesn't have any skin in the game. And Mary has some money. She's got a house, car, maybe a vacation home, and a 401k that carried over from another company. And she's an officer of the company. She really might be the only one left with any money when the dust settles after this company goes out of business. There have been cases...

As she left, I was really hoping she'd talk to a lawyer.

She emailed me a few days later.

Hi, Jim,

I quit the job. I went in to my boss' office the next day and said, "we really need to talk about this Texas tax liability." He said, "Mary, it would be a really good idea if you never brought this up again. Ever." I realized that I didn't want to work there anymore. I figured if he had a problem with just one thing like that, what else was lurking? And as the CFO, I didn't want to be associated with that kind of business.

Thanks, Mary

The moral of the story? There are two.

First of all, sales tax seminars can be more interesting than you'd think.

Secondly, if you're an officer of the company, you have some serious liability for your company's "mistakes," whether it's sales tax, payroll taxes or some other problem. Beware.

By the way, a couple of years later, I was chatting with an executive with the audit division at the Texas revenue department. I told him the story. After shaking his head, he asked hopefully, "You don't happen to know the name of either of those companies, do you?"

"Nope," I smiled. "My seminars are kind of like confession. What's said in the seminar, stays in the seminar."

And if you're wondering, the dialogue and facts are as true as I can remember. But the states, cities and Mary's name were all changed to protect the extremely guilty.


Sales Tax Guy

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Personal Liability

You are in such trouble! This is going to be a relatively short article. But one that's very important. Based on what the rules are in most states, you need to worry about personal liability. What does that mean? It means you could lose your savings, your vacation house, etc. All because your company really screwed up the sales tax. So read on.

Officers of the corporation
You're liable. Period. Maybe you'll dodge a bullet if you're not involved in the management of the company. Maybe.

Spouses in sole proprietorships or partnerships
You're liable. Particularly if you filed your income taxes jointly. You signed the return. Which means you officially knew what was going on.

You're the controller
If you're an officer, see above. If you're not, but you're intentionally failing to pay the appropriate taxes, and you have authority, you might feel some pain too.

Staff accountants and other employees who complete and sign the return
First of all, don't sign the return. The officer who does have the personal liability should be signing that return. Make sure the auditor knows that you're signing the return because the big dog told you to. The auditor will then go after the big dog.

Here's an illustration of the problem.

See, short one. But very important to your future vacation plans.

Sales Tax Guy

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Don't sign that return!

I'm on a mission. The problem is that most companies don't take sales and use tax seriously. As mentioned elsewhere, your executives don't know what they don't know. Since the big dogs don't take the tax seriously, if they give it any thought at all, the odds of them signing the SUT return are pretty low. Which only reinforces the "not taking it seriously" part.

So, here's an idea. Make the big dogs in your organization sign the return. If they start signing it, maybe they'll ask questions. Maybe they'll start taking the tax seriously. Maybe they'll read this blog. Maybe, just maybe, they'll go to a seminar or take in a webinar! (OK, there's a self-serving aspect to this editorial too)

And if they wonder why they need to sign this silly sales tax return, offer the observation that they probably sign the company's 1120 Federal Income Tax return? Frankly, if you get audited, the bigger assessment, and certainly the bigger surprise, will probably come from the sales tax audit. So they should be scared of sales and use tax. And therefore, take it seriously. So encourage your execs to take the responsibility they already have and sign the return.

Wait a minute! Did he say "they already have?"

Yeah, I did. Even if a lowly staff accountant signs the return, the real responsibility will come to rest on the officers of the company anyway. Just another example of what they didn't know.

By the way, I know that some of you don't have this opportunity. You're working at a branch location of a larger company that files consolidated income tax returns out of your home office. But that's usually not an option for sales tax. So you're off the hook. But for the rest of you, I'm wagging my finger at you.

Sales Tax Guy
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