SEEKING WHAT YOU NEED TO HEAR vs. SEEKING WHAT YOU WANT TO HEAR

Sometimes my job can be quite difficult. I don’t enjoy telling the client that they have nexus, and/or that they have sales tax exposure in a state that they should address as soon as possible. Trust me, I would much rather share the news with a client that everything they are doing is perfect and that they don’t need my help. And having worked as the Tax Director for a publicly-traded company, and in the Tax Department of a $Multi-billion communications company, I consider myself a pragmatist. That is, I believe in seeking not only the technical position in the law, but also the policy position of the audit leadership in that state, and helping my clients navigate through the assessment of risk to the solution that makes the optimal business sense, while maintaining compliance.

I was recently engaged by a corporate taxpayer to represent them in resolving a tax dispute with a state...four years after I initially advised them to proactively approach this same state under the state’s voluntary disclosure program, concede nexus, register, and resolve historical liabilities under a limited three-year look-back period with full waiver of penalties. This was in 2010. Had the taxpayer taken this advice, the liability would have been considerably low, as sales had not yet grown to the level at which they are currently. Furthermore, they would have been able to go back to most customers to seek reimbursement of the liabilities they should have collected for the state when they invoiced the customers.

I believe in seeking the technical position in the law, the policy position of the audit leadership in that state, and helping my clients navigate through the assessment of risk to the solution that makes the optimal business sense.

Rather than accepting this advice, the taxpayer continued speaking with other tax accountants and attorneys until they got the advice they wanted to hear, which was that nexus did not exist and they did not need to register. Three years later, in 2013, the taxpayer was audited by that state, was found to have nexus in state for the prior decade, and was assessed tax, interest and penalties – nearly $150,000!!

None of us likes bad news, but sometimes bad news is what we need to hear, especially if it enables us to change what we are doing and mitigate the impact of doing things the wrong way.

While my firm will pull out all the stops to minimize this liability and place this taxpayer in the best position, we certainly face a longer and more treacherous journey than the one we would have been on had the taxpayer taken my advice three years prior to the state’s audit.

None of us likes bad news, but sometimes bad news is what we need to hear, especially if it enables us to change what we are doing and mitigate the impact of doing things the wrong way.

ASK YOURSELF...

• Do you know what it is you are doing in each state?
• Do you know if you are filing sales tax everywhere you have nexus-creating activities?
• Have you spoken with a dedicated sales tax professional about your obligations?
• Have you continued to check with dedicated sales tax experts for the truth, or did you stop seeking advice when you thought you heard what you wanted to hear?