It’s like a teacher giving a pop quiz on the topic she knew everyone in the class was struggling with. Except you’re the student, the teacher is the state and that pop quiz: a use tax audit!
No grading curve here. And unfortunately, the likelihood of this scenario actually playing out is more likely than ever.
States just keep on floundering financially. And what bigger slam dunk than going after companies in an area they know their odds of finding liabilities are high? That’s why insiders say state auditors are turning a much sharper eye towards the flip side of sales tax compliance: use tax compliance.
So how would your company do if an auditor showed up on your doorstep today? Here’s how to find out.
3 questions to ask now
Asking the following three questions is a great way to determine just how audit-ready you are now when it comes to the tricky subject of use tax:
1. Do other people in your company even understand what use tax is? Purchasers may think they’re securing your company a deal if they buy from an out-of-state vendor who doesn’t charge them sales tax. But they may not realize this doesn’t let your company off the hook – and even creates more work for you. Unless it’s an exempt purchase, your company now has to track, self-assess, report and pay use tax to the state.
2. Are you confident what each purchase is being used for? On that subject, it’s tough to know when and if your company owes use tax if you don’t know how a given purchase is being used. How would you rate the communication between Finance and purchasers? How clear are your purchase orders as far as spelling out intended use for buys? You’ll want to show an auditor that no use tax compliance decisions were made without all the proper information.
3. Do you have the proper use tax rates? Fact: Sales and use tax rates aren’t always the same. So when you do realize you owe use tax on a purchase, you’ll want to be confident you’re assessing at the proper rate. Fortunately, there are plenty of tools at your disposal to help your company with that. One good one: the free sales and use rate calculator, you can get here.
Note: There’s a limit of 50 lookups a day.
