Ohio Tax. Workshop I. Basic: Ohio Sales & Use Tax: Best Practices in Compliance & Successful Audit Strategies

(1)

24th

Annual

Tuesday

&

Wednesday,

January

27 ‐

28,

2015

Hya

Regency

Columbus,

Ohio

Ohio T

ax

Workshop I

Basic

: Ohio Sales &

Use Tax: Best Practices

in Compliance & Successful

Audit Strategies

Tuesday, January 27, 2015

3:00 p.m. to 4:00 p.m.

(2)

Biographical Information

Paul Tomcufcik, Director, Sales/Use Tax Division, DuCharme McMillen & Associates

25000 Country Club Blvd. Ste. 220 North Olmstead, OH 44070

ptomcufc@dmainc.com

440.779.9000

Fax

440.779.9012

As Director of the Cleveland sales/use tax practice, Paul works closely with clients and DMA’s sales/use

tax staff to develop and implement tax planning strategies that result in significant tax savings. He also

works with state tax authorities to ensure DMA’s clients receive equitable treatment. In addition, Paul

plans, organizes and performs sales/use tax diagnostic and transaction analyses for major corporations.

He analyzes clients’ transaction tax data, reviews sales/use tax audit assessments and files the

necessary appeals. He also negotiates with auditors and hearing officers regarding audit assessments

and refunds, performs sales/use tax managed audits on behalf of clients, establishes managed

compliance agreements for clients, and provides sales/use tax training seminars.

Experience

Paul has over 22 years of sales/use tax experience. Before joining DMA, he was a Tax Manager for

Deloitte & Touche LLP. While there, he managed the sales/use tax consulting activities of the Cleveland

office. He completed sales/use tax overpayment reviews and Ohio managed audits, performed sales/use

tax audits and attended hearings. In addition to his public accounting experience, Paul has four years of

experience with the Ohio Department of Taxation, Sales/Use Tax Division, where he performed audits of

mid-size to large corporations.

Education/Credentials

Paul holds a Bachelor of Business Administration degree in Accounting from Kent State University and

continues to expand his knowledge by attending seminars that examine the latest changes in state and

local taxation. He is a member of the Institute for Professionals in Taxation.

Kurt J. Davies, Director, Audits and State & Local Taxes, The Sherwin-Williams Company

101 Prospect Avenue, NW, Cleveland, OH 44115

kjdavies@sherwin.com

216.566.2648 Fax 216.566.2392

Kurt Davies is currently the Director of Audits and State & Local Taxes for The Sherwin-Williams

Company, specializing in all Audit areas – IRS, State and Local; Sales/Use, Income and Property. He

also oversees compliance areas in Sales/Use, Real & Personal Property, Payroll Taxes, Unclaimed

Property, Ohio CAT, Business Licenses, 1099’s and W9/W8.

Kurt has worked at Sherwin-Williams since July 1989. He spent his first 5 years in the Accounting

Department working in Real Estate, Fixed Assets and General Accounting. He then moved into the Tax

Department and has held various tax jobs over the past 19+ years.

Kurt received his Bachelor of Business Administration degree in Accounting from Cleveland State

University. He passed the Ohio CPA exam and received his Master’s Degree in Taxation from The

University of Akron. He is a member of the AICPA and Tax Executives Institute.

J. Eric Buntin, Nat’l Director Compliance, DuCharme, McMillen & Associates, Inc.

8440 Allison Pointe Blvd., Suite 300, Indianapolis, IN 46250

ebuntin@dmainc.com

(317) 596-3260, ext. 2445

Eric leads one of DMA’s largest and fastest growing practices where he oversees a staff of dedicated

sales/use tax compliance professionals responsible for the processing and payment of client tax returns

for Fortune 1000 clients. He provides strategic tax planning for complex business transactions and

conducts extensive research for unique client tax issues. Eric has more than 22 years of business tax

(3)

NORTH

AMERICA’S

TRUSTED

CHOICE

FOR

CORPORATE

TAX

SOLUTIONS

1 Ohio Sales & Use Tax:

Best Practices in Compliance &

Successful Audit Defense

(4)

Presented by

Kurt J. Davies, CPA, MT

Director, Audit and State and

Local Taxes

The Sherwin-Williams Company

Paul Tomcufcik

Director, Sales/Use Taxes

DMA

Eric Buntin

National Director, Compliance

DMA

(5)

NORTH

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TRUSTED

CHOICE

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TAX

SOLUTIONS

3

(6)



Excellent

Compliance

Practices

=

Great

Audit

Results



Incorrect

Collection

Rates

or

Exempting

Sales

That

Don’t

Qualify

Affects

Your

Company’s

Bottom

Line



Exemption

Certificate

Database



(7)

NORTH

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TRUSTED

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FOR

CORPORATE

TAX

SOLUTIONS

5 

In

‐

house

Compliance

v.

Outsourced

Compliance

*

Clean

Data

Files

*

Don’t

Manipulate

the

files

–

Take

Directly

From

Source

Files



No

Manual

Data

Entry



More

People

=

More

Issues/Problems



Review

Your

Technology



Review

Processes

Regularly



Eric

Buntin – Compliance/Outsourcing/Automation

(8)



Ohio

Sales/Use

Tax

Filing



Outsourcing

Considerations



Best

Practices

(9)

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7 State

State

Rate

National

Rank

Avg.

Local

Rate

Combined

Rate

National

Rank

Tennessee

7.00%

2 2.45%

9.45%

1 Arkansas

6.50%

9 2.69%

9.19%

2 Louisiana

4.00%

38 4.89%

8.89%

3 Washington

6.50%

9 2.38%

8.88%

4 Oklahoma

4.50%

36 4.22%

8.72%

5 Ohio

5.75%

27 1.36%

7.11%

19

(10)

(11)

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9 

Separate

Returns

based

on

tax

type



UST

‐

1:

Ohio

Universal

Sales

Tax

Return



UUT

‐

1:

Ohio

Universal

Use

Tax

Return



Due

Date



23 rd



State

Rate

=

5.75%



Collection

Discount

allowed

=

.0075



Sales

tax

only



CAT

– Commercial

Activity

Tax

(12)

OHIO

FILING

METHODS

All

OH

vendors

required

to

file

electronically regardless

of

sales

volume

using

either

of

following

methods:



TeleFile



UST

only



Single county/location

only



Ohio

Business

Gateway



Input

data

directly



Express

Data

Entry

o

Upload

county

sales/use

tax

data

o

Input

remainder

of

return

(13)

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11 

Monthly

>

$5,000

in

quarterly

liability



Quarterly

<

$5,000

in

quarterly

liability



Semi

‐

annual

<

$1,200

per

six

‐

month

period

(14)

OHIO

TAX

PAYMENT

OPTIONS

1. ACH

Debit

2. ACH

Credit



Must

be

registered

with

Treasurer

of

State

3. Paper

Check



Tax

liability

thresholds

apply

4. Credit

card

EFT

Requirement



Annual

tax

liability

of

$75,000

or

more

(15)

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13 MONTHLY

SALES/USE

TAX

FILING

PROCESS

1. Run

Source

Data

Reports



Data manipulation usually required



Errors/Adjustments



Use tax accruals

2. Return

Preparation

3. Return

Review

4. Tax

Payment

Processing



Treasury/AP verification

5. File

Returns

6. Reporting



G/L reconciliation

1

3

(16)



Still

require

in

‐

house

time/resources



I/T



Tax

Group



Data

manipulation

requirements



How

much

time

each

month?



Are

changes/manipulation

material?



3 rd

_party

_access



Timing



Provider

requirements

(17)

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15 

Review

provider

‐

prepared

returns

before

filing?



Timing

• Incorporating

adjustments



Internal

Resources

• Time

• Cost

• Consistency



Does

provider

REQUIRE

sign

‐

off

prior

to

filing?



Internal

cost/time

estimate

needed

(18)



Not

an

option

from

all

providers



If

kept

in

‐

house

• Timing

• Filing

responsibilities



Alignment

with

internal

Treasury

policies



Lump

sum

vs.

individual

payments

• Elimination

of

separate

check

requests



Signing

thresholds



EFT

payment

policy

of

provider



ACH

Cr



ACH

Dr



Provider

funding

requirements



Timing

(19)

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17 

Online

filing

capabilities



Web

file



EDI



Provider

filing

(timing)

policies



Immediate

upon

completion



“X”

number

of

days

prior

to

due

date



Filing

confirmation(s)



Kept

for

each

state/filing

jurisdiction?

(20)



Standard

provider

reporting

package



Does

it

meet

my

monthly

needs?



Does

provider

offer

custom

reporting

options



Development

time



Cost



Online

availability



Returns



Tax

payments



Reports

REPORTING

(21)

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SOLUTIONS

19 

Realignment

of

internal

resources



Access

to

sales/use

tax

specialists



Tax

expertise



Shifting

of

Risk



Increase

in

administrative

control



Provider

Tax

and

Metric

Reports



Tax

liability

summaries

(22)

SALES/USE

COMPLIANCE

BEST

PRACTICES



Integrated

AR

and

AP

systems

(single

ERP

system)



Provides

for

a

single

tax

determination

point



Minimize

the

number

of

monthly

tax

data

reports



Streamlined

return

preparation



Monthly,

routine

updates



Tax

Rates



Product

Codes

• Integrated

with

monthly

system

updates

from

IT



Tax

Department

Control

(23)

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21 

Tax

Engine

(Effective

&

Efficient)



Taxware



Thomson

Reuters

OneSource

(previously

Sabrix)



Vertex



Return

Preparation

Software

(Efficient)



OneSource/Insource



TaxSolver



CCH



SaaS

(Software

as

a

Service)

(Effective)



3rd

party

tax

rating



Outsourcing

(Efficient)

(24)

1)

What

does

the

service

include?



Tax

payment

processing

2)

Is

any

part

of

the

process

outsourced?



Off

shoring



Payment

processing

3)

Staffing

– is

there

a

dedicated

account

executive?



800 customer

service

number



Name/email

address/phone

number

4)

Technology/Process

– what

return

preparation

software

is

used?



Scalability

(25)

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SOLUTIONS

23 5)

What

does

the

on

‐

boarding

process

consist

of?



How

long

will

it

take



How

much

of

your

time

will

be

required

6)

What

type

of

security

is

provided

with

regard

to

tax

data,

electronic

transmission

and

funds?



EFT

tax

payments

7)

How

much

or

how

long

will

tax

data

be

stored?

8)

How

do

you

handle

tax

data

discrepancies/errors?



Error

report



Are

we

notified?

(26)

9)

Do

you

manage

communication

with

taxing

authorities?



Tax

Notice

Management



Multi

‐

state

tax

expertise

very

important

10)

Control

– how

can

we

monitor

your

work?



Online

access

– web

portal



Return

review

Kurt

Davies

‐

Successful

Audit

Defense

(27)

NORTH

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SOLUTIONS

25 

Audit

Defense…What’s

Important

?



Timeliness

– Communicating

with

the

Auditor



Involvement

– Be

Proactive



Data

– Complete

and

Accurate



Understanding

– Audit

Plan

(28)



Selection

Process



Information

from

other

tax

collectors

• State

• Internal

Revenue

Service



Targeted

industry



Substantial

taxpayer



Prior

audit

(29)

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27 

Stay

Current



Ohio

Tax

Conference



Tax

Executives

Institute



ROCI

Meetings

(Retailers

of

Common

Interest)



Tax

Club



Other

Professional

Networking

Groups



Be

Proactive



Refund

Opportunities

for

your

Company?



Materiality

of

New

Developments



Amended

Return?



How

Does

This

Impact

Other

States’

Audits?

(30)



Statute

of

Limitations

(SOL)



Both

assessment

and

refund



Pending

federal

adjustments?



Waivers?



Protect

SOL

for

refunds



Scope

Of

The

Audit



Sales

Tax

Audit



Use

Tax

Audit



Both

?

(31)

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SOLUTIONS

29 

Sampling

Techniques

Used

By

Auditor



Eliminate

Tax

‐

Paid

Transactions



Eliminate

Accounts

that

have

tax

paid

already



Schedule

Credits

in

the

audit

?



File

A

Refund

Claim

?



Prior

Audit

Findings

– Can

You

Rely

On

Them?



Issues

That

You

Thought

Were

Resolved

May

Appear

Again

(32)



Preparing

For

The

Audit



Review

State

Audit

Guidelines



Brief

Relevant

Employees



Examine

Current

Tax

Files



Review

Tax

Law

Changes



Is

Amended

Return

Warranted



Review

Sales/Use

Tax

Reserve

(33)

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31 

Assemble

Relevant

Information



Chart

Of

Accounts



Returns



Data

– Electronic

Format



Subsidiaries



If

“Sales

Tax”

Audit

– Exemption

Certificates



Strategize

Plan

to

Obtain

Invoices

and

Other

Records

(34)

AUDIT:

INITIAL

CONTACT



Understand

Scope

Of,

and

Period

Under,

Audit



If

close

to

expiration

of

Statute

of

Limitations,

request

first

year

be

dropped



If

unsuccessful,

obtain

concessions

for

expedited

audit

or

waiver



Consider

Statute

of

Limitations

for

refunds

and/or

Revenue

Agent

(35)

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33 AUDIT:

INITIAL

CONTACT

• Initial

Meeting

–

Discussion

of

issues,

concerns

and

Resolutions

• Obtain

audit

plan

• How

was

taxpayer

selected?

• Records

auditor

will

want

• Attempt

to

ascertain

the

level

of

auditor

discretion,

by

issue

–

Establish

agreement

• Timetable

for

completion

• Length/timing

of

field

work,

including

drop

dead

date

Multistate Tax Commission

33

(36)

AUDIT:

INITIAL

CONTACT



Initial

Meeting

(Continued)



Establish

agreement

• Timing

of

milestones

to

be

met

by

both

parties

• Rules

on

[NOT]

extending

Statute

of

Limitations

–

Manage

expectations

• Control

access

to

personnel

and

records

–

Procedures

for

requesting

information

–

Procedures

for

requesting

interviews

• Be

available

for

questions

• Avoid

fishing

expeditions

and

training

audits

• Establish

one

point

of

contact

for

auditor

• Be

courteous

(37)

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35 AUDIT:

HOUSEKEEPING

MATTERS

• Establish

Work

Area.

–

Considerations

in

selecting

area

–

Preserving

confidentiality

of

taxpayer

documents

• Establish

Copy

Procedure

–

Taxpayer

makes

requested

copies

–

Keep

duplicates

• Manage

Flow

of

Information

–

Give

only

what

is

requested

–

Give

extra

(

i.e.

,

affirmative

facts

and

analyses)

only

when

clearly

favorable

and

strategy

has

been

considered.

Multistate Tax Commission

(38)

AUDIT:

HOUSEKEEPING

MATTERS

• Manage

Flow

of

Information

(Continued)

–

Thoroughly

prepare

operations

personnel

and

third

parties

for

interviews

and

depositions

• Track

the

Information

Flow

–

Get

all

requests

in

writing

–

Keep

record

of

all

responses

and

copies

of

all

documents

provided

–

Keep

detailed

notes

of

meetings

(39)

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37 AUDIT:

HOUSEKEEPING

MATTERS

• Limited

Cooperation

as

a

Tactic

–

Will

the

State

go

away

or

develop

the

information

elsewhere?

–

Will

the

State

take

an

unreasonable

position

that

will

produce

substantial

costs

to

unravel?

–

“Audit

Reputation

Risk”

–

Consequence

of

astronomical

protective

assessment

• Prevent

Access

to

Unauthorized

Sources

–

Written

agreements

on

limits

and

methods

of

gathering

information

Multistate Tax Commission

(40)

AUDIT:

HOUSEKEEPING

MATTERS



Prevent

Access

to

Unauthorized

Sources

(Continued)



Badges

for

auditors

that

are

different

than

standard

employee

badges



Examine

library

or

other

common

area

for

unauthorized

documents,

such

as

transaction

books

(41)

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39 RULES

OF

THUMB

ON

MANAGING

THE

AUDIT



Communicate

and

Avoid

Surprises



Stay

on

Track



Question

Departures

from

Plan



Avoid

Premature

Discussion

of

Technical

Issues



Understand

the

Audit

Chain

of

Command



Manage

Internal

Expectations

Multistate Tax Commission

(42)

RULES

OF

THUMB

ON

RESOLVING

DISAGREEMENTS

• Do

We

Have

a

Disagreement

or

a

Misunderstanding?

• Alternative

Sources

of

Information

or

Proof

• Request

Issue

Determinations

as

They

Occur

• Request

Involvement

of

Supervisor

Only

as

Needed

• Negotiation

at

Audit?

(43)

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41 RULES

OF

THUMB

ON

MAJOR

ISSUES

• As

soon

as

possible

after

potential

controversy

identified,

Company

should

create

a

record

of

material

facts:

–

Identify

and

interview

key

employees

and

third

parties

–

Identify,

organize

and

preserve

relevant

documents

• Mastering

factual

record

essential

to

posturing

case,

evaluating

settlement

opportunities,

minimizing

document

costs,

and

WINNING

case

• Finding

Fact

Witnesses

–

Critical

to

pretrial

education

of

team

–

All

fact

‐

finders

prefer

knowledgeable

fact

witnesses

to

statements

by

Rep.

Multistate Tax Commission

(44)

AUDIT:

CLOSING

THE

AUDIT



Discuss

Any

Adjustments



Authorities



Conclusions

reached



Possibility

of

settlement/discretion

to

resolve

at

audit

level



Agreement

with

Audit

Schedules

(45)

NORTH

AMERICA’S

TRUSTED

CHOICE

FOR

CORPORATE

TAX

SOLUTIONS

43 

California

– New

Exemption



Texas

– R

&

D

Exemption



Minnesota

– Capital

Equipment

Exemption

(46)

CONTACT

INFORMATION

Kurt J. Davies, CPA, MT

Director, Audits and State & Local Taxes

(216)566‐2648

kjdavies@sherwin.com

Paul Tomcufick

Director, Sales/Use Taxes

(800) 309‐2110

ptomcufcik@dmainc.com

Eric Buntin

National Director, Compliance Services

Indianapolis, IN

(800) 309‐2110, ext. 2445

ebuntin@dmainc.com