Management by Crisis?
Manufacturing facilities are getting leaner by the day to stay competitive. Lean is a term that is not “user friendly” to accounting departments. Lean means the department will lose personnel and the survivors will have to do more to cover the loss. A client, where a facility was going lean, told me about potential sales and use tax problems, “I am more concerned about the alligator at my ankles, than what is coming down the river.”
The decision to manage by crisis is not a sound decision. There are firms who are available to help recover overpaid tax or minimize potential liability. Sales and use tax compliance is not sexy but can save your company potentially hundreds of thousands of dollars in exposure or recovery.
Sales and use tax laws are somewhat fluid in their interpretation and you must make a sound argument and under the correct statue to prevail. Just recently the Supreme Court of Missouri overturned a tax hearing in which the contractor was not liable for use tax to remand it back because their interpretation was incorrect. To quote the decision “Bartlett could have argued that the services rendered to install the conveyor parts were excluded from the sales price under this provision (section 144.605(8)) but did not do so.” The wrong argument for exemption disqualified that exemption and therefore Bartlett was unable to apply the “true object test”.
With laws and interpretation being fluid you cannot spend enough money to be right on every item because you will bankrupt yourself trying to be compliant. The goal of everyone who is responsible for the reporting of sales and use tax is to be more right than wrong. Unlike baseball, a .300 average in sales tax compliance is not the ideal situation. The .300 average will get an assessment presented to your company that could be a financial strain and cause some sleepless nights.
So, how much emphasis do you put on compliance? This is a question that only you can answer, but management by crisis rarely ever works. Outsourcing might be the way to go in sales and use tax compliance in which you get the expertise of a firm without all the associated costs to incur that knowledge. Being proactive in compliance puts you in charge and helps remove the unknown from audit examinations. Remember, sometimes the alligator coming down the river has the potential to be larger than thought.