In our experience, most companies are leaking cash, by overpaying their sales and use taxes.
Most companies have overpaid tax, and they don’t even know it. You may have all of the processes in place and designed and implemented the best system, but just not realize that you aren’t catching that trickle of cash casually making its way to the state.
A trickle that you don’t need to be funding.
We like the analogy of air conditioning with the window open.
Maybe you buy the latest programmable thermostat, insulate the walls and do everything you can to ensure that your air conditioning is efficient.
Then the temperature rises, the air conditioner clicks on and hours later you realize the kids left the windows open.
The whole time you have been leaking cash through the window – despite all of your best efforts.
Sales And Use Taxes Are Like An Open Window On A Hot Day With The Air Conditioner On
Just like leaving the window open, it is very easy to leak sales and use tax cash. As with the air conditioner: nine out of ten times nobody knows.
Mistakes can surface on either end of the sell-buy process. Vendors may charge sales tax on exempt items or calculate it incorrectly. This might not even be a mistake – your vendor’s understanding of the situation may just be wrong.
The complexity of sales and use tax makes accruing and charging the appropriate taxes in all situations impossible for vendors.
Another source of error could be something as simple as a coding error prompting your accounting department to pay money you don’t really owe.
We knew of a hospital where bill-paying software had been set up so that any item for which they’d been charged sales tax automatically accrued use tax, as well. One tiny little switch somewhere deep in the system.
But this means that they were paying twice, to the tune of almost $800,000 over three years. No one knew who was responsible. It was just overpaid tax money leaking out of the company.
Sometimes an error is only an error when you have enough knowledge to recognize it as such. One client classified a $10 million dollar capital improvement as just that and paid what thought was the appropriate sales tax.
That seems straightforward enough. But, when we looked at it we didn’t see a $10 million capital improvement, we saw an ad. The state agreed and refunded the tax.
Who is at fault for the cash leak?
Most of the time, nobody at the client is to “blame” per se. Accounting and finance often do a great job, but just don’t have the specialized expertise. They spend their time making the company work, not pouring over sales tax laws, regulations, and case law.
That is the right decision, but it doesn’t mean that the company isn’t leaking money.
To make sure, call in the experts. We ONLY pay attention to sales and use tax and we know the ins and outs. This gives us the experience to understand the complexity, know when to argue and when to back off.
Or, perhaps better said, we make sure the windows are closed so that you don’t waste money.
Of course, when air conditioning leaks out the window it is gone forever – money, on the other hand, we can get back.
We recover that overpaid tax and we close the leak so that the overpayments slow.
Nobody can afford to have their team bogged down by sales tax and use tax management.
Better to rely on outside sales and use tax professionals who live and breathe the details.
That is what we do. We study sales tax and use tax continuously. It is all we do. We know where to push and where to search to find money you didn’t know is yours.
Interested in what we can do for you? Let’s talk.