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1 SALES&USETAX FUNDAMENTALS STATE&LOCALTAXFORUMI SEPTEMBER252013 The next level of service
2 OpeningCommentary PatrickGregory ManagingDirector UHYAdvisors The next level of service
3 SCHEDULEOFEVENTS 8:00AM8:15AMOpeningCommentary 8:15AM9:45AMSales&UseTaxFundamentals 9:45AM10:00AMInteractiveDiscussion The next level of service
4 ATTENDEECHECKLIST CPEmaterials Feedback Tearoutforminbackofattendeebooklet Questions Keepalookoutforaposteventemail DownloadacopyofthePowerPointpresentation Linktoviewthevideo SignuptodayforForumsII&III The next level of service
5 ABOUTUHY LOCAL NATIONAL INTERNATIONAL Morethan40yearsof 14officesacrosstheUS Memberfirmsinmorethan experience Morethan1,000 260citiesinover85 PracticeleaderswithBig4 professionals countries experienceandtraining RankedoneoftheTop20 Over7,000professionals OfficesinFarmingtonHills professionalservicesfirms RankedamongtheTop25 andSterlingHeights byAccountingToday internationalaccountancy employingmorethan275 MoreSECregistrantsthan networks professionals CPAfirmsdoubleoursize Revenueof$622m Rankedsixthlargest PCAOBreportswithno professionalservicesfirm in comments MetroDetroitbyCrain's DetroitBusiness Unmodifiedpeerreview reports SterlingHeightsofficeisthe largestaccountingfirmin MacombCounty The next level of service
6 USLOCATIONS CONNECTICUT MICHIGAN NEW JERSEY RYE BROOK NEW HAVEN FARMINGTON HILLS OAKLAND 800 Westchester Avenue 59 Elm Street 27725 Stansbury Blvd. 153 Bauer Drive Suite North 641657 Suite 215 Suite 200 Oakland, NJ 07436 Rye Brook, NY 10573 New Haven, CT 06510 Farmington Hills, MI 48334 Telephone: 201 644 2767 Telephone: 914 697 4966 Telephone: 203 401 2101 Telephone: 248 355 1040 Fax: 201 337 4462 Fax: 914 697 7583 Fax: 248 355 1057 GEORGIA NEW YORK TEXAS ATLANTA STERLING HEIGHTS ALBANY DALLAS Five Concourse Parkway 12900 Hall Road 66 South Pearl Street 1717 Main Suite 2450 Suite 500 Suite 401 Suite 2400 Atlanta, Georgia 30328 Sterling Heights, MI 48313 Albany, NY 12207 Dallas, TX 75201 Telephone: 678 602 4470 Telephone: 586 254 1040 Telephone: 518 449 3171 Telephone: 214 243 2900 Fax: 678 602 4300 Fax: 586 254 1805 Fax: 518 449 5832 Fax: 214 243 2929 ILLINOIS MISSOURI NEW YORK CITY HOUSTON CHICAGO ST. LOUIS 19 West 44th Street 2929 Allen Parkway 30 S. Wacker Dr. 15 Sunnen Drive 12th Floor 20th Floor Suite 1330 Suite 108 New York, NY 10036 Houston, TX 77019 Chicago, IL 60606 St. Louis, MO 63143 Telephone: 212 381 4800 Telephone: 713 561 6500 Telephone: 312 578 9600 Telephone: 314 615 1301 Fax: 212 354 6445 Fax: 713 960 9549 Fax: 312 346 6500 Fax: 314 647 8304 WASHINGTON D.C. MARYLAND WASHINGTON COLUMBIA 1325 G Street NW 8601 Robert Fulton Drive Suite 500 Suite 210 Washington, D.C. 20005 Columbia, MD 21046 Telephone: 202 609 6100 Telephone: 410 423 4800 Fax: 410 381 2524 The next level of service
7 GLOBALNETWORK AMERICAS NewZealand Poland Argentina Pakistan Portugal Brazil Singapore Romania Canada Taiwan RussianFederation Chile Vietnam Slovakia Colombia Slovenia DominicanRepublic EUROPE Spain Ecuador Albania Sweden ElSalvador Austria Switzerland Jamaica Belarus Turkey Guatemala Belgium Ukraine Mexico Bulgaria UnitedKingdom Peru CzechRepublic PuertoRico Croatia MIDDLEEAST& UnitedStates Cyprus AFRICA Uruguay Denmark Azerbaijan Venezuela Estonia Angola Finland Bahrain ASIAPACIFIC France Egypt UHY International Australia Germany Israel Member Offices Bangladesh Greece Jordan China(incl.HongKong) Guernsey Kenya India Hungary RepublicofKuwait Indonesia Ireland Lebanon Kazakhstan IsleofMan Mauritius Japan Italy Morocco Korea(Rep.of) Latvia Nigeria Malaysia Lithuania SouthAfrica Luxembourg Tunisia Malta UAE Netherlands Norway The next level of service
8 SELECTSERVICEOFFERINGS AUDIT&ASSURANCE TAXPLANNING& ADVISORY Audits,Reviews& COMPLIANCE InternalAudit,Risk& Compilationsof FederalTaxPlanning& ComplianceServices FinancialStatements Compliance Management&Technology AuditsofFinancial State&LocalTax ConsultingServices Statementsof Planning&Compliance ResourceSolutions EmployeeBenefitPlans InternationalTax &Pensions TransactionServices Planning AttestationServices, EmployeeBenefitsConsulting TransferPricing IncludingAgreedUpon ProceduresReportsand ExecutiveTax&Financial FORENSIC,LITIGATION& ServiceAuditorReports PlanningServices VALUATION (SSAE16Reports) ExpatriateTax CommercialLitigation& AuditCommittee FinancialDamageAnalysis BusinessFormation& Advice EntityStructuring BusinessValuation DueDiligence CostSegregation FinancialFraudExaminations FinancialForecasts& &Investigations EstatePlanning Projections BusinessInsuranceClaim Research&Development Measurement&Consulting FinancialReporting Credits Assistance AccountantMalpracticeClaims FamilyLaw&Divorce Consulting ElectronicDiscovery The next level of service
9 Sales&UseTaxFundamentals SusanWagner State&LocalTaxSpecialist UHYAdvisors The next level of service
10 AGENDA GeneralConcepts TaxCompliance Audits,Assessments&Appeals CurrentIssues The next level of service
11 TYPESOFSTATETAXESIMPOSED PropertyTaxes PayrollTaxes FuelTaxes SinTaxes CorporateIncome/FranchiseTaxes FlowThroughWithholdingTax InheritanceTaxes EstateandGiftTaxes PersonalIncomeTaxes LocalIncomeTaxes The next level of service
12 GeneralConcepts The next level of service
13 HISTORY NoStateLevelSales/UseTax: Alaska Delaware NewHampshire Montana Oregon Butthereareover13,000taxratejurisdictionsthroughoutthe countrythatdotax Wheredoesyourbusinessoperate? The next level of service
14 HISTORY AttheendofWorldWarI,salestaxexistedoutsidetheU.S.in ordertoassistfiscalsystemsfrompostwarexpensesand increasinginflation. TheGreatDepressionof1930ssawtheadoptionofsalestaxin theU.S.originallythoughttobeatemporarymeasure. In1933,Michiganenactedthesalestax.Thecomplementary usetaxfollowedin1937. The next level of service
15 SALESTAX&USETAX MICHIGAN Thesalestaxisimposedupontheprivilegeofengagingin businessasaretailer. Theusetaxisimposedupontheuse,storage,orconsumptionof tangiblepersonalpropertyinthestateanduponcertain specifiedservices. Localjurisdictionsarenotauthorizedtoimposelocalsales/use taxesbuttherearesomespecialpurposetaxes. The next level of service
16 SALESTAX&USETAX MICHIGAN Thesalestaxisleviedonthegrossproceedsofallpersons engagedinthebusinessofmakingsalesatretailbywhich ownershipoftangible personal property istransferredfor consideration. Grossproceeds=salesprice Tangiblepersonalproperty=propertythatcanbeseen, weighed,measured,felt,ortouchedincludeselectricity, water,gas,steamandprewrittencomputersoftware The next level of service
17 SALESTAX&USETAX MICHIGAN Salespriceincludes:sellerscostofpropertysold,costof materialsused,costsoftransportationtoseller,otherexpenses oftheseller,chargesneededtocompletethesale,deliveryand installationchargesincurredbeforethetransferofownership, creditforanytradein. Salespricedoesnotinclude:interest,financing,orcarrying chargesfromcreditextendedonthesale,IFtheamountis separatelystatedontheinvoice,taxesarenotincludedinthe priceifseparatelystated. The next level of service
18 SALES&USETAX MICHIGAN Purchasepriceincludes:totalamountofconsiderationpaidby theconsumertotheseller. Whatisconsideration?Cash,credit,property,services,for whichtheitemorserviceissold,leased,valuedinmoney, whetherreceivedinmoneyorotherwise,andappliestothe measuresubjecttosalesorusetax. The next level of service
19 ELEMENTSOFASALESTAX TRANSACTION MICHIGAN Theremustbeatransferofownership Betweenaseller(vendor)andapurchaser(customer) MusttakeplaceinMichigan Musthaveconsideration The next level of service
20 HOWDOYOUKNOWWHICHSTATES YOUSHOULDFILEIN? Situs IntrastateversusInterstate Nexus The next level of service
21 SITUS(SOURCING) Wheredidthesaleorpurchasetakeplace? Thewheremaynotalwaysbetransparentbutiscritical Whichjurisdictionslawwillrulethetransaction? State,county,city,specialtaxorall? Whichjurisdictionreceivesthetax? Whodoyouowe? Whataboutthesaleorpurchaseofservicesorintangibles? Whatareyousellingorbuying? The next level of service
22 INTRASTATEVS.INTERSTATE Intrastate Transactionbeginsandendsinthesamestate Examples: Acustomerpurchasesanitematalocalretailstore AbusinesslocatedinDetroitpurchasesadeskfrom acompanyinFlintandhasitshippedtotheirAnn Arborlocation Intrastate=SalesTax The next level of service
23 INTRASTATEVS.INTERSTATE Interstate Transactionbeginsinonestateandendsinadifferentstate Examples: AcustomerordersanitemataRoyalOakretailstoreandhasthe retailershipthepurchasetoSanFrancisco AbusinesslocatedinIllinoispurchasesadeskfromacompanyin NewYorktobeshippeddirectlytotheirofficeinChicago Interstate=UseTax The next level of service
24 NEXUS Dictionarydefinition Ameansofconnection;tie;link ForSales/UseTaxPurposes U.S.Constitutionalrequirementhasbeenmetwithrespecttoimposing ataxcollectionresponsibleonanoutofstateseller Nexusbetweenavendorandataxingstateisarequirementunderboth theCommerceandDueProcessclausesoftheConstitution AtaxisvalidundertheCommerceClauseifitisappliedtoanactivitythat hassubstantialnexuswiththetaxingstate UndertheDueProcessClause,theremustbeaminimumconnection betweenastateandtheperson,property,ortransactionbeingtaxed The next level of service
25 NEXUS/COLLECTIONRESPONSIBILITY Whetheranobligationtocollecttaxtoasalebyanoutofstate sellerisdeterminedbyacombinationoffederalandstatelaw. Atthefederallevel,thedeterminationrevolvesaroundwhether anexusbetweenthesaleandthestatecanbeestablished. Atthestatelevel,adeterminationofwhetherthesellermeets thecriteriaofnexusinthatstateexists. Ifthereissufficientnexus,thenafilingobligationmayexist. The next level of service
26 NEXUS/COLLECTIONRESPONSIBILITY Whoisliableforthetax? Sellerandpurchaserhavejointliabilityforremittingthetax Selleressentiallybecomesthestatescollectionagent Sellersubjecttoliability,if,asanagent,hefailstocollectthe tax Primaryreportingandpaymentresponsibilityforsalestaxis ontheseller Primaryreportingandpaymentresponsibilityforusetaxison theuser,butanoutofstatesellerwithnexusmustcollect thetax The next level of service
27 DETERMININGTAXABILITY Doesthepurchaserhavesalestaxexemptstatus? FederalGovernment ForeignGovernments/Diplomats StateMunicipalities(sometimes) EducationalInstitutions(sometimes) NotforProfit501(c)(3)Organizations Manufacturing/IndustrialProcessors SaleforResale RollingStock Agriculture NativeAmericanReservationTransactions OccasionalorIsolatedSales(sometimes) The next level of service
28 EXEMPTIONS&EXCLUSIONS Exemptionsareexpressedinthefollowingways Explicitly(bylaw) Asexceptionstothedefinitionofengaginginbusinessof sellingtangiblepersonalpropertyatretailorsalesof taxableservices FederalandStatelimitations(constitutionallimitations) Asexclusionsfromataxablecategory: Basisofthenatureoftheproduct(exemptorganization) Thetypeoftransaction(resale) Thenatureoftheentitysellingorbuyingtheproduct(manufacturer orcharitableorganization) The next level of service
29 EXEMPTIONCERTIFICATES Asellermustobtainandkeepexemptioncertificatessignedby thepurchaserasevidenceforanyexemptsalestransaction. BurdenofProofisonseller Mustbeavalidcertificate Certificatescanexpire requirementsvarybystate Federal501(c)(3)exemptiondoesnotnecessarilyprovide statelevelexemption Ifpurchaserdoesnotprovidecertificate,chargetax The next level of service
30 DIRECTPAYPERMITS Allowsforapurchasertopaythetaxdirectlytothejurisdiction. Methodofselfaccrual Generallymustbeauthorizedbytaxingjurisdiction Documentationmustbeprovidedtotheseller Ifpurchaserdoesnotprovidepermit,chargetax The next level of service
31 TaxCompliance The next level of service
32 TAXCOMPLIANCE Systems Sales Audits Compliance Data Purchases Operations The next level of service
33 LICENSINGANDREGISTRATION SalesTaxLicense UseTaxRegistration Penaltiesforfailurenottoregister The next level of service
34 RETURNSANDPAYMENTOFTAX Returnscanbedueonamonthly,quarterlyorannualbasis, dependingonfilingthresholds Prepaymentscanberequired ElectronicFiling Variesbystate ElectronicFundsTransfer Remitpaymentonline Thresholdrequirements Variesbystate The next level of service
35 RETURNSANDPAYMENTOFTAX PenaltiesandInterest Latefiling Deficiencyoftax EarlyPaymentDiscount AmendingReturns Refunds RecordKeeping SellingorQuittingaBusiness The next level of service
36 Audits,Assessments&Appeals The next level of service
37 WHYAUDIT? Inordertoadministerandenforcethelaw Books,documents,data,etc.maybeexamined Lawrequiresanddictatestherecordsthatmustbekept Corporateofficersandresponsiblepartiesofflowthrough entitiesmaybeassesseduponfailuretopaytaxesdue The next level of service
38 NOTIFICATIONTOAUDIT Generallynotifiedbymail Mayreceiveanexusquestionnaire DeskAudits ManagedAudits StatuteofLimitations The next level of service
39 KEYAREASINAUDIT NonRecurringItems InternetSales&Purchases LargeDollarItems CreditCardPurchases (ProcurementCards) TestPeriodCutoff CapitalAssets Sales ExemptionCertificates Purchases TaxReturns The next level of service
40 NONRECURRINGITEMS FixedAssets SaleorPurchaseofaBusiness JournalEntries Changesinrecords,datacollection,newsystems Unusualevents The next level of service
41 ACCRUALACCOUNTS UseTaxAccruals DoestheAccrualSupporttheTaxReturn Areaccrualssystemgenerated understandtheflowofdata The next level of service
42 TESTPERIODCUTOFF Reviewthedatesofseveralinvoicesorpurchases makesure nonearebeforeoraftertheauditperiod. Knowwhethertheauditperiodorauditsamplecouldbe impactedbyanunusualeventthatcouldskewthesampleor data Changeinbusinessoperations Newsystemsversuslegacysystems Changeininternalprocedures The next level of service
43 SALES Runthenumberstoseeifyouwouldbebetteroff removingaparticularcustomerfromthesample(or otherunusualevent) Anybaddebtsduringauditperiod Documentationofexemptions Proofthattaxcalculatedoninvoiceiscorrect Documentedsupportforthetaxreturnsfiled The next level of service
44 PURCHASES Runthenumberstoseeifyouwouldbebetteroffremovinga particularpurchasefromthesample Onetimepurchase Unusualevent Isthepurchaseexempt?Documentwhy. Generallyallcapitalassetpurchasesfortheauditperiodwillbe reviewed FixedAssetSystemReporting DepreciationSchedules Bygeneralledgeraccount The next level of service
45 DATA&DOCUMENTATION Auditorhasrighttoaskfordocumentation BurdenofProofisontaxpayer Abilitytowalkauditorthroughthesystemgenerated calculationstosupportsales,purchases,accruals,taxreturn Legacyorarchivedsystemsshouldbeaddressedwhenthe auditbegins(orotherissuesthatwouldimpactdata retrieval) Howaccessibleisthedata auditslookbacktothepast Inhousetaxpolicytoaddressdataanddocumentation proceduresastheypertaintoaudits The next level of service
46 AUDITHISTORY Whenwasthelastaudit?Whatwastheresult? Reviewpriorauditworkpapersbeforestartingnewaudit Adjustments?Why? Correctionsasnotedbyauditor havetheybeenmade? The next level of service
47 AUDITS,ASSESSMENTS&APPEALS AuditAssessmentProceduresVarybyState PayAttentiontoTimeLineonAppealAssessments Cangenerallyworkwithauditortoadjustworkpaperspriorto anassessmentbeingissued(recommended) AvoidJeopardyAssessmentandTaxLien/Levy Oncereceivedrequireimmediateattention Mayobtainacourtesyholduntilresolution BurdenofProofonTaxpayerthatanassessmentisunwarranted! The next level of service
48 APPEALPROCEDURES CanVaryByStateandTaxType TaxpayerBillofRights InformalConferences PaytoPlay The next level of service
49 WHATTODO? DependsonAmountofAssessment HowwilltheAssessmentEffectFutureAudits HowStrongistheCase CanYouDefendIt? Realizethatpenaltiesandinterestareaccruing Whatothercostswillbeincurred? Doyouneedlegalcounsel? Workwiththeauditorbeforethefinalassessment tryto avoidappeals negotiateasettlement The next level of service
50 AUDITS,ASSESSMENTS&APPEALS VoluntaryDisclosureAgreements Mustbeanonfiler Agreementwithstatetobringtaxescurrent Limitedlookbackperiod Penaltiesmaybewaived,interestisnot TaxAmnestyPrograms SimilartoVoluntaryDisclosureAgreement Generallyhavealimitedwindowofopportunity Oftenlimitedtoaparticulartax Maywaivebothpenaltiesandinterest The next level of service
51 CurrentIssues The next level of service
52 TAXPROJECT StreamlinedSales/UseTaxProject BeganinMarch2000 Establishedtosimplifysales/usetaxcollection Attempttostandardizethedefinitionsandtaxabilityof items Encouragevoluntarycollectionbyoutofstatevendors EffectiveinMichiganin2004 Frequentlyupdated The next level of service
53 CLOUDCOMPUTING Whatisit? Provisionofremoteaccessfromacentralserviceproviderto computingapplications,platformsorinfrastructure DefinedasaservicebyU.S.Government Howistheservicesold? SoftwareasaService(SaaS) PlatformasaService(PaaS) InfrastructureasaService(IaaS) Whatistheactualtransaction?Whatisthetrueobject? Whatareyoubuying?Tangiblepropertyvs.servicevs. intangible Statesarestilltryingtounderstandtechnologyandtax treatment The next level of service
54 INTERNETSALES/REMOTESELLERS Currentlegislation Nexusredefined ComplianceNightmare? Areyouready? The next level of service
55 CONTACTINFORMATION PatrickGregory ManagingDirector [email protected] 2483554487 SusanWagner State&LocalTaxSpecialist [email protected] 5868432579 The next level of service
56 INTERACTIVEDISCUSSION Q&A The next level of service
57 ATTENDEECHECKLIST CPEmaterials Feedback Tearoutforminbackofattendeebooklet Questions Keepalookoutforaposteventemail DownloadacopyofthePowerPointpresentation Linktoviewthevideo SignuptodayforForumsII&III The next level of service
58 CONCLUDINGTHOUGHTS ThankYou! The next level of service
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