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TAX SOLUTIONS
State Tax Audit Representation
We work directly with our clients to reduce or eliminate audit assessments. Our approach is to “roll up our sleeves” and make sure that all credits and exemptions available to our clients are applied against the proposed audit assessments. Utilizing available credits/offsets not only reduces the amount of tax assessed, but also minimizes penalties and interest. We also review audit sampling and extrapolation methodologies employed by State Departments of Revenue to ensure our clients are not adversely affected by the use of certain proposed sampling methods. In the event disputes arise, we will vigorously defend client positions within the particular state’s appeal system. As necessary, we will retain third-party legal counsel who specialize in state tax litigation, to assist with the dispute resolution.
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Tax Refund Reviews
At MCE we will conduct a detailed review of our client’s purchase records to identify and recover overpayments of state & local sales and use taxes. Our services include all research, analysis, preparation of documentation, or other assistance required to maximize recoveries for our clients. Our services also include negotiating with respective State Department of Revenue (“DOR”) personnel. Unlike some less experienced service providers, we will never file a claim for refund without our client’s consent. We understand that other factors are important to consider before a refund claim is filed, and not every overpayment situation warrants the filing of a refund claim.
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Managed/Participatory Audits
An increasing number of State Departments or Revenue ("DOR") are allowing taxpayers the opportunity to use a “Managed” or “Participatory” audit approach to conduct their sales/use tax audits. Under these audit approaches, the taxpayer, or its representative, conducts various portions of the audit fieldwork, and the DOR acts in an advisory capacity, and provides verification of the taxpayer’s work. In exchange for this, the taxpayer is generally provided with some incentive, such as full penalty abatement, and perhaps a reduction in interest.
The Managed or Participatory audit approach is generally a win-win situation for both the taxpayer and the DOR. The DOR benefits by being able to reduce the number of auditor hours on the audits. In addition to the penalty (and perhaps interest) benefits, the taxpayer wins by being able to have better control over the audit process. MCE has significant experience representing clients on Managed and Participatory audits, either as a “turn-key” solution or assisting our clients with certain aspects of the audit.
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Managed Compliance Agreement (“MCA”)
Sarbanes-Oxley legislation has raised the bar with respect to sales and use tax compliance procedures. An MCA offers a simplified or formulary method of determining a taxpayer’s monthly use tax liability and is based upon statistical sampling. The use of statistical sampling minimizes the time and effort to implement a MCA while maximizing validity. This allows a taxpayer to accurately budget for use tax and to properly match revenues and expenses in the correct accounting period. Under a MCA, the taxpayer and the Department of Revenue ("DOR") agree to a single taxable percentage (“single rate”) to be applied to the relevant expense accounts. Many states have embraced this method of use tax compliance and are strong proponents of MCA’s. Manufacturers, and in some instances service providers (e.g., financial institutions, insurance companies, healthcare organizations, etc.) are excellent candidates for a MCA.
The benefits of the MCA method are substantial to both the taxpayer and to the DOR. Through the use of an MCA, our clients can greatly reduce compliance costs by reducing time spent on making tax decisions on high volume, low dollar, reoccurring expense purchases. This will free up corporate tax professionals for value added projects. Furthermore, a MCA will typically increase cash flow by eliminating overpayments on purchases, and eliminating costly penalties and interest associated with underpayments.
Due, in part, to unprecedented budget deficits, many states have been striving to pass sales and use tax legislation designed to replenish the state coffers. This fact, coupled with a steady stream of court decisions and audit policy changes, makes it imperative that a use tax compliance procedure be designed to quickly adapt to such changes; otherwise, underpayments and overpayments could materialize. An MCA compliance procedure provides our clients with the ability to respond to law changes and make changes to their single rate by simply adjusting the tax determination on the previously sampled transactions. Moreover, it also allows our clients to quantify materiality (e.g., refund opportunity or exposure) in retrospect of court decisions or audit policy changes made by the DOR's.
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Sales and Use Tax Transactional Planning
One of the most often overlooked opportunities is the opportunity to change the sales/use taxability of items - before the purchase is made. With effective tax planning techniques, this can be achieved. At MCE we work with our client’s tax, legal and operations personnel to research, develop, document, and implement structured tax planning solutions. These tax planning opportunities are aimed at providing significant prospective tax savings.
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Voluntary Disclosure
As states' budget deficits continue to grow, Departments of Revenue ("DOR") are consciously looking for ways to increase the amount of tax revenue brought into the state’s coffers through the use of Voluntary Disclosures and/or Amnesty Programs. Generally, any taxpayer who owes taxes may participate in the Amnesty Program if the taxpayer is not currently under audit, has not received audit notification or notice of delinquency. Typically, DOR’s are willing to abate penalties and perhaps a portion of the interest in exchange for payment of the tax due for the agreed upon look-back period (usually three or four years) and prospective registration by the taxpayer. MCE has assisted many clients with the Voluntary Disclosure/Amnesty process. MCE’s services may include, but are not limited to, negotiating interest abatement and assisting with the process of calculating tax due for the look-back period.
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Sampling Evaluation
We provide our client’s with a detailed review and analysis of audit statistical sampling methodologies proposed by state Departments of Revenue ("DOR"). At MCE, we work with DOR's statistical sampling personnel to revise proposed statistical sampling plans to make the audit sampling process more efficient, without exposing our client’s to undue sampling risk. Where appropriate, we recommend and defend alternative sampling methodologies which ensure that our client's best interests are represented.
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Litigation Support
MCE personnel can provide Expert Witness testimony which can be an effective means to resolve complex tax litigation. Our experts can testify on all aspects of sales and use taxation. MCE partners have worked with various state & local tax litigators.
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