I was having lunch with a client at the Morton’s on Connecticut Avenue in DC.  We were celebrating the end of a nasty audit that I helped her resolve and I wanted to get her blessing to start a sales tax refund project.  Her company was ripe for this project, so I started laying out my ideas.

“Nah!  Screw them.”

Picture those scenes in movies where a shocking statement makes someone spit their drink out suddenly.  That would’ve been me if I had been taking a sip of my iced tea at that very moment.  (Thankfully it didn’t happen because I wouldn’t want to get tossed out onto the mean streets of DC!)

Her knee-jerk response didn’t make sense.  The upside for her company was substantial.  Why did she shoot this opportunity down without even blinking an eye?

“I got passed up again for a director-level promotion, so who cares.”

Whoa!  Hell hath no fury like a tax manager scorned.

Are your employees stepping over opportunities each day that can bring value to your organization, and possibly money in the door?

(Are you curious to know how that story ended?  A free lunch at Morton’s might jog my memory!)

I’m going to assume that your Accounts Receivable clerks and your collection agents have been pretty busy over the past few years.  Cash flows are tight and companies are still closing their doors because of the turbulent economy.  That means your company is probably having some occasional trouble getting customers to pay their bills.

All that being said, why aren’t you taking sales tax deductions for your uncollectible accounts?

Let me be fair, some companies are taking advantage of this benefit (I’m being generous).  Nine out of ten people who I talk to don’t take full advantage of this deduction.

Here’s what to do and an explanation of why you’re probably not already doing it:

1) What to do: If you’re writing off uncollectible accounts, and you sold those customers something that was subject to sales tax, most states will allow you to take a sales tax deduction.  (Each state has it’s own set of requirements, so I’d be happy to take the conversation off-line if you want some tips).

2) Why you’re probably not already doing it: The systems that handle your general ledger, invoicing, and sales tax returns often don’t talk to each other automatically.  The companies that take full advantage of this little-known benefit have separate processes each month to make sure no sales tax deductions are being overlooked.

What’s your confidence level in your company’s ability to capture the sales tax deductions for uncollectible accounts?

Would you be shocked if I were to tell you that there’s a group within your company that flushes money down the toilet?  Maybe not.  What might surprise you is that the group I have in mind is your customer service group.

How do the friendly folks in your customer service department flush money down the toilet?  Probably in many ways – but the area that’s near and dear to my heart is the sales tax and telecommunications taxes that they flush down the toilet.

Let’s act out a scene:

[Know-It-All Customer]: I just got your invoice and we shouldn’t be paying sales tax (or telecommunications tax).

[Friendly Customer Service Rep]: I’m terribly sorry, I’ll issue you a credit for the tax that was charged.  I’ll also give you a free month of service as a token of our appreciation for your business.

Too many customer service reps are wired to coddle angry customers and give them what they want.  Unless you work at Nordstrom, you need to help your company’s customer service reps understand that the customer is NOT always right.

When a customer service rep erroneously issues a credit for taxes that should have been collected – that’s eroding your company’s bottom line because the state/locality will still have you on the hook to pay that tax.

When it comes to tax issues, does your company have a policy that requires customer service reps to defer the issue to the tax department before taking any action?