SALES TAX TUESDAY 2018: Texas 'Special Edition'

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You maybe thinking that I have abandoned my Sales Tax 2018 road trip, but I haven’t, I’m just trying to make sure that some critical ‘state-by-state’ issues impacting taxpayers in those states are reported in a timely manner so that they don’t get overlooked simply by including them in a more generalized article on the state’s sales tax.  That’s why we have had several ‘special editions’ of Sales Tax Tuesday 2018 the last few weeks.

By the way, don’t think just because I write a ‘special edition’ regarding a state that it means that we will be not be including the regular road-trip style article concerning that state at some point in the series.

Even though these ‘Special Editions’ typically are associated with a specific state you shouldn’t think that they have no bearing on you, or perhaps your own clients, located somewhere else.  We have talked about out-of-state seller compliance laws being imposed, and that is becoming the norm, not the exception. So, if your state doesn’t already have these provisions, you should be on the look-out for them because I can almost guarantee they will be ‘coming soon.’  Of course, the out-of-state seller issue and requirements could very well impact you and your clients even if the state being discussed is Oklahoma, who may well be wanting to collect from your clients who are selling to Oklahoma consumers.

Another issue that is all too common but differs in every state in terms of how the program is administered is ‘sales tax amnesty’, which represents a portion of this week’s Texas-Special Edition.  As an introduction to the soon to be started tax amnesty in Texas, I am using the example of a sales tax compliance audit as not only a reason why a sales tax collecting business might want or need to participate in an amnesty program, but to give you an example of just how easy it is to get into trouble in terms of strict sales tax compliance.

Of course, this Sales Tax Tuesday 2018 series is made possible with the assistance of Avalara, the leader in sales tax automation for businesses of any size. Their product offerings provide the most complete set of transaction tax compliance services available, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Absolutely nobody knows sales tax better than Avalara. And so, as always, I relied on Avalara as the source of much of the content contained in this article (as well as the series as a whole).

It can only be said that ‘Texas takes Sales Tax seriously’…so the question is, can you afford to ignore the ‘tax amnesty’ they will start offering on May 1, 2018?  If you have never been through a ‘sales tax audit’, you may not realize that one of the most common sources of risk arising from such audits is ‘exemption certificate’ compliance. 

Texas seems to ‘home in’ on exemption certificate compliance when auditing even the smallest of businesses claiming sales exemptions related to sales tax remissions.  If a business isn’t doing the job of collecting exemption certificates and they get audited, they are looking at a ‘big assessment’ representing not only the unpaid tax (since no document disqualifies the exemption) but penalty and interest on the tax, as well as fines for non-compliance. 

In a case that Avalara, the tax people cite, one company was audited by Texas tax authorities, and a $2-million assessment was levied just based on missing or invalid exemption certificates.  Seems that the company was collecting documentation on taxable jobs but didn’t collect certificates related to tax exemptions. 

Of course, that brings up the question of what do you do with the certificates you do obtain? Stick them in some vendor file, never to be looked at again rather than keeping them current?  Tuck them in a big box one after another with no sense of organization to be able to give the ‘tax guy’ the specific one he wants when he comes to audit as to why you didn’t collect sales tax from “Joe Blow dba Joe’s Blasting and Blowing Service”?

Do you realize that as far as Texas is concerned, one missing or invalid certificate of exemption, that can’t be located or produced upon demand, is the perfect invite to turn a simple inquiry into a full-blown audit?  While Texas auditors will sometimes give you a grace period to locate missing or expired certificates, you still have a mess because now you are trying to produce hundreds or perhaps thousands of records within a 30-days grace period, that costs you lots of 'man hours' just trying to do what you should have been doing all along.  

But Texas can also be ‘forgiving’ to an extent, and that’s what Tax Amnesty is all about. Tax amnesty programs encourage non-compliant businesses to pay what they owe.

The Texas Tax Amnesty Program runs from May 1, 2018 through June 29, 2018 and will, under certain circumstances, provide delinquent taxpayers with relief from penalties and interest on tax due. Tax amnesty applies to tax reporting periods before Jan. 1, 2018, and only includes liabilities that have not been previously reported to the Comptroller’s office.

If a taxpayer has been notified that a period or periods are scheduled for an audit review, or if they are already under audit review, then those periods are not eligible for amnesty. It does not apply to accounts which have been certified to the Office of the Attorney General, accounts which are presently in litigation, or accounts which have been reduced to judgment.

If a business knows that it hasn’t collected the proper taxes due to a lack of exemption certificate documentation, and the documentation can’t be found or obtained, and the business is not yet scheduled for, or undergoing, an audit review, the amnesty period is the perfect time to compute the past due tax, amend their prior reports with the under-reported taxes, and remit it under the provisions of the program in order to avoid penalties and interest on the past due tax.

Of course, the Texas Tax Amnesty Program isn’t just about amnesty associated with the underpayment of taxes due to exemption certificate non-compliance, it’s about all forms of under- or non-reporting, even non-registration.  Participants in this amnesty can essentially ‘wipe clean’ their risk.  They can register for taxes that should have been reported, and catch-up on reports that should have been filed, and pay their past due taxes without penalty or interest.

For more information specifically regarding the Texas Tax Amnesty Program contact the Texas Comptroller of Public Affairs.  You can also download their free brochure on this program via these websites:  Brochure [English] or Brochure [Spanish].

It can be deceivingly easy to be lured into a false sense of compliance when it comes to sales tax like taking the word of your customer that they are ‘sales tax exempt’, or not following-up when you don’t receive the latest ‘sales tax exemption certificate’ from one of your best customers.  You can also be deceived into thinking that ‘the tax guy will be in and out of here in under 5 minutes on that simple sales tax inquiry they scheduled’; after all, you pay all the sales taxes you should, right? Problem is, you just don’t know where that certificate he is going to ask for has gone, because you don't even know which one he wants to see till he gets there.

You are not alone…literally thousands, tens-of-thousands, hundreds-of-thousands of businesses, small-medium-large, nationwide are in the same boat, that's why you need a sales tax expert on your team.  Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via Avatax gives you the assurance of compliance without sacrificing productivity so that your sales tax is way less taxing than ever before, even if the sales tax auditor is on his way to see you.