Ever heard of a sales tax refund review? You might know it as a refund recovery project, sales tax recovery project, audit recovery or a reverse audit. More or less, these terms all mean the same thing: Reviewing transactions—specifically purchases and fixed asset acquisitions—for tax that was paid that shouldn’t have been.
In this process, a tax professional reviews all business purchases to tell you where you are paying taxes, what you are paying taxes on and why you are paying them—and then see if you are subject to any tax exemptions.
The problem is this: Because of the complexities of state sales tax legislation, there are many exemptions companies are unaware of, yet might be subject to.
But every business of any size who has nexus in multiple states will benefit greatly from a sales tax refund review. This is especially true for companies like:
All these industries have several associated refunds in many states. Also, business purchases made in these industries may not have tax associated with it.
For example, if your company paid tax on a purchase of software, depending on the place and nature of the use, you may not have had to pay tax on that purchase.
So, whether you’re a small company paying ten thousand in taxes a year or a large company paying ten million in taxes a year, you should consider a sales tax refund review. Here’s why.
A lot of finance or accounting departments in businesses will err on the side of caution when paying out state taxes. And that’s sound logic. Dealing with unpaid taxes down the road is a much worse scenario than paying it up front.
But being cautious and always paying the tax can end up costing your business a lot of money each year. Plus, sales tax is a margin killer, especially when you’re overpaying. A refund review can help you recoup some of these lost funds and prevent you from overpaying in the future.
A sales tax refund review gives you better insight into the taxes you’re paying, where you’re paying them and why. This is valuable knowledge for your business—and peace of mind that you’re compliant where you need to be compliant.
Also, even if the refund recovery project doesn’t uncover any major overpayments, it does verify that your tax process is working. And state legislation can change. Your nexus can change. Even if you’re doing everything right, it’s wise to conduct a sales tax refund review every two years or so. That way, you have the knowledge of how to adapt should your business or state legislation change in the future.
Finally, a sales tax refund review can also help offset your tax liability. When the state comes in and audits you for sales tax on transactions, they are only looking at where you didn’t pay taxes that you should have—not the other way around. It’s not their responsibility to do that, and they actually avoid it.
So, reviewing where you’re making purchases and paying taxes on the front end is a wise choice. You could end up owing less when liabilities come up in an audit.
Those in charge of tax collection for their company, like controllers, VPs of tax and tax managers, are responsible with ensuring their business is compliant from a sales tax perspective. That’s why many might be nervous to take on a sales tax refund review. After all, you don’t want to end up admitting costly mistakes and put your job on the line.
But think of it from another angle. You don’t have to be the bearer of bad news. Instead, you could be the tax hero, identifying improvements to your process and saving your company thousands and thousands of dollars. Your company will only benefit moving forward.
If you’re concerned about the accuracy of your tax process, making a lot of purchases, paying a lot of tax, or under a sales tax audit, it’s a good idea to conduct a sales tax refund review. Everyone is entitled to the refunds available—you just have to identify the opportunities.
And the sales tax people can help! It doesn’t have to be a complex or robust process. It’s as simple as letting a company like Peisner Johnson come in to review everything, and if we find something we can help you get a refund—while training you in the process.
Need help conducting a sales tax refund review? Fill out our short What’s Next questionnaire to get in touch for a free 45-minute consultation.