Sales & Use Tax Refund Analysis
Each of the forty-five states imposing a sales tax uses different tax laws and theories to impose the tax. For example, in one state small marshmallows may be considered “candy” and taxable, while in that same state large marshmallows may be considered “food” and exempt. Some states use the “integrated plant theory” so that most equipment touching a manufacturing facility are exempt from use tax, while others narrowly allow, if at all, a manufacturing exemption. Further complicating the landscape, this area leads to a never-ending flow of changing authority, including changing laws, regulations – and most notably, case law, from the trial level to the U.S. Supreme Court.
Our process is designed to thoroughly review a company’s accounts payable records for sales and use tax overpayments. This is a detailed procedure and requires a complete understanding of multi-state sales/use tax laws and regulations. The focus is on accounting errors, the application of various tax exemptions, such as the manufacturing exemption, and the applicability of sales taxes to certain items, such as electricity used in manufacturing.
As with income tax refund analysis, before we recommend a refund claim we evaluate the client’s exposure. We will not move forward until the client is comfortable that the benefits exceed the potential risks.
Sales & Use Tax Planning
Similar to income/franchise, sales & use tax planning requires an understanding of the multistate and multitax context. Good planning takes into account the operations of a company, business purpose for changes to legal structure and the impact the plan may have on other state taxes.
The best planning may involve “combination strategies” (those that save two different types of taxes) and “redundancies” (strategies that overlap and provide savings of the same tax so if one goes away the second strategy steps in and provides a similar benefit).