Bellatoris Consulting, LLC

Archive for September, 2011|Monthly archive page


Three Deal Breakers for Acquisitions

In M&A on September 30, 2011 at 10:53 AM

Many people look at the stock market, the housing market, and unemployment rates as prime indicators of the economy’s health.  Those are fine and good, but I also like to look at recent mergers and acquisitions.  When M&A is hot, so is the economy.

When CEOs and bankers get on a roll for M&A activity, it’s hard to slow down that train.  Remember the old adage “haste makes waste”?  Here are three examples of sales tax and use tax problems that can cripple a hastily-executed acquisition:

  1. The target company’s unpaid sales tax or use tax liabilities;
  2. Your company’s unpaid sales tax or use tax liabilities (if you’re getting acquired); or
  3. Sales tax liabilities that may result from the acquisition itself.

What does this all mean?  See the sound bites below:

Issue #1 above: When you acquire a company that has unpaid sales tax or use tax liabilities, you are now the proud owner of those liabilities.  States will hold you accountable for those amounts even though they were generated by the legacy company.

Issue #2 above: When an acquiring company uncovers your unpaid sales tax or use tax liabilities, that’s often a matter that’s handled through downward purchase price adjustments or escrow accounts.  To protect themselves, companies in this situation will be overly cautious in determining the amount of the potential liability.  Get your house in order before-hand so you don’t give away more than you need to at the bargaining table.

Issue #3 above: In certain occasions, assets or inventories may be subject to sales tax as a result of the acquisition itself.  Make sure you’re aware of the potential liabilities that may be triggered from this event.

All of that being said, let’s go out there and strike up some M&A so we can get this economy firing on all cylinders again!!

 


Confessions From A Boat Enthusiast

In Automation on September 26, 2011 at 10:52 PM

I love boats.  The relaxing hum of the engine, the serene feeling of being in nature, the wind blowing against my glistening scalp.

I also love the feeling of getting off a boat and thanking the owner for the ride.  Even though I love boats, I don’t own one.  If you’re a fan of the show Pawn Stars, you may know that the acronym “BOAT” stands for Bust Out Another Thousand.  Boats are huge money pits!

I’ve talked to a number of people who bought a boat prior to realizing the cost and amount of work required.  Over time, the boats fell into disrepair and were never utilized to their full potential.

I’ve seen the same move with sales tax automation systems.  Companies get caught up in the idea of automating their sales tax or their use tax compliance systems and buy software that costs thousands of dollars (sometimes hundreds of thousands of dollars).  Plus, they don’t account for the cost to implement and maintain the system.

Don’t get me wrong, I love these systems.  I’ve helped many clients set them up.  I’ve also had to painfully sit back and watch a few clients throw their hands up in disgust and let them rot on a server without being used.

Investing in a sales tax automation system can be similar to investing in a boat.  If you do your homework and look for the system that’s right for your company, you’ll enjoy your investment for many years to come.


Is Your Computer Too Powerful For You?

In Compliance on September 25, 2011 at 11:52 AM

After being a loyal PC user for almost two decades, I’m looking to go back to Mac.  On a recent trip to the Apple Store, I armed myself with some questions for one of their very helpful staff members.  Here’s how the conversation went:

Me: “I’m looking to replace my work computer, and I think I need the 17-inch MacBook Pro with the 8GB memory upgrade and the 512GB solid-state drive upgrade.  Do you think that’ll be enough to handle my awesomeness?”

Apple Guy: “Well, what kinds of things do you do with your current work computer?”

Me: “I mostly do a lot of writing, research, and occasionally have to handle some pretty large amounts of data on spreadsheets.”

Apple Guy: [Holding up his hands making a STOP signal]  “Whoa there cowboy, all the stuff you asked about would be overkill for what you need!”

Overkill?  Go figure that a man automatically thinks he needs the biggest, baddest, most powerful piece of technology he can get his hands on.

After telling the Apple Guy that I already had an external monitor that I wanted to continue using, he told me to consider the 15-inch or even the 13-inch model to save a few bucks.  He said the standard 4GB of memory would be more than sufficient after hearing more about what I do.  He also said the $1,100 512GB solid state hard drive upgrade was crazy for pretty much anyone to get.

My new friend helped me shoot for a more appropriate goal in finding a new computer, not to mention helping me save over $2,000!

The same can be said for sales tax.  I’ve seen many companies go overboard with how they collect and pay sales tax.  Just like with my recent computer experience, the same can be said for your company’s sales tax practices.  More is not always better.

All you need is a scruffy-faced guy in a blue t-shirt (or a bald guy in a suit!) to talk you through a tailored-fit game plan so you don’t end up paying more than you should.

 


Can You Trust Tax Advice Given By A State?

In Compliance on September 22, 2011 at 11:37 AM

I got a “sanity check” call from a client recently.  The problem was, he called a state’s taxpayer help line because he had a simple question, but the advice he got didn’t sit right with him.

In this particular case, the state official advised him to absorb the sales tax that his company should have been charging.  In other words, the official advised my client to not charge any sales tax and just pump up the price of the goods/services so his company could pay the tax at the end of the month.

Sounds simple…but it’s illegal!!

So, the advice he got from the state was 100% wrong.  In that particular state, there’s clear statutory language that says tax absorption is prohibited.  Thank goodness my client decided to phone a friend and get a sanity check!

Bottom line – there’s a reason why the advice you get over the phone from a state is not legally binding.  Unfortunately, you roll the dice when you call their taxpayer help lines.

If you can’t afford any degree of risk, hire a specialist (wink wink).

Have you ever been burned by the verbal advice given to you buy a state taxing authority?  If so, please feel free to share your story!


Can You Tax a Touchdown?

In Compliance on September 19, 2011 at 11:27 PM

If you want a good laugh, do a search on YouTube for touchdown celebrations.  (Remember the Ickey Shuffle??)

Wouldn’t it be great if you could get away with that kind of tomfoolery at your job?  The next time you turn in your TPS reports, slam them to the ground and do a little jig.  If it catches on with your co-workers, please let me know!

Believe it or not, sales tax auditors celebrate touchdowns like any other football fans.  Well, the touchdowns I’m talking about aren’t the ones on the football field.  Instead, I’m talking about cases where your company takes first possession of tangible property (e.g. computers, machinery, equipment, etc.) from your vendors.

Here’s a common scenario that I see: Company A  has an office in Virginia (or any other state without a temporary storage exemption) where they receive a shipment of 100 laptops.  Once the IT department opens the box, they decide to ship the laptops to employees located across the country.

In this example, Virginia would assert a sales tax liability on ALL 100 of those laptops because Company A took first possession of them in Virginia.  Even though they were immediately sent out of Virginia, auditors would have a lawful claim in this case.  As you can imagine, this is often a gold mine for auditors.

Don’t get caught by surprise during your next sales tax audit.  Do you know if your company receives property in states that don’t have an exemption for temporary storage?


Are You Getting Charged the Right Amount of Sales Tax?

In Audits, Compliance on September 13, 2011 at 3:09 PM

When you get a receipt, do you take a second to scan it for errors?  Don’t be ashamed.  I do it all the time (discretely of course!).

Like most Borders book stores, the one by my house just closed.  Before that fateful day, I stopped in because of the awesome discounts they were offering.  As I walked out with my books, I took a quick scan of the receipt to make sure the correct discounts were applied.

Notice anything missing?  Being that I’m a sales tax consultant, you’d expect that I also checked to see if the sales tax was correct as well….right??  (I’m sad to report that I did, in fact, check the sales tax!)

What about your company’s Accounts Payable clerks?  Do you think their cursory scan of vendor invoices also includes a check of sales tax?  I’m sorry to say that my guess would be “no.”

So, what happens if your vendor charges your company the wrong amount of sales tax?  Would an auditor cut you some slack?

I’m also sad to report that the answer to that one is another big fat, “no.”  Auditors have fully authority to issue assessments on transactions where vendors did not charge the correct amount of sales tax.

What plans do you have in place to ensure the accuracy of sales tax that is being charged by your vendors?


Can a Record Retention Policy Cost Big Bucks?

In Audits, Compliance, Refunds on September 7, 2011 at 5:34 PM

I was an eyelash away from sealing the deal on a six-figure refund claim.  I made a call to my client to ask for the final set of supporting documents.  Victory was in sight.

“Yeah, we don’t have any of those invoices.  Sorry.”

What??  These transactions happened two years ago.  Why wouldn’t they have any copies of these invoices?

The answer ended up being very simple.  My client was a government contractor and their operations people had a 6-month record retention policy for security purposes.  Anyone in the accounting profession, however, is used to a window of 3-7 years for keeping records.

In the case of my refund claim, we were lucky enough to sweet-talk my client’s vendor into providing copies of the invoices we needed.  Because of that, we were able to save the refund claim.  Without those invoices, we would have walked away with nothing.

If your company has unusually short record retention policies for groups outside of the accounting/finance area, then you need to figure out how to get your hands on documents that may be required for future purposes (e.g. audits and refund claims) before they get lost in off-site storage.

How many different record retention policies does your company have?


How Much Profit Do You Lose from Employees that Ignore You?

In Compliance on September 6, 2011 at 4:30 PM

Do you remember the last awkward moment you had at work?  Mine was two weeks ago.  Thinking about it still makes me cringe.

While on a conference call (not my preferred medium!), I had to break the news to a CFO that they were grossly underpaying sales tax on the materials and equipment being purchased for their government contracts.  Big deal, right?  Those kinds of discussions happen all the time.

This particular discussion took an awkward turn when the CFO conferenced in one of the company’s Vice Presidents.

CFO: “Did you know that we’re not paying sales tax on the materials and equipment we buy for use in our contracts?”

VP: “Well, we decided to streamline our procurement so we could speed up our delivery….”

CFO: “That’s not what I’m asking!”

I’ll spare you the 2-3 minutes of  brow-beating that ensued after that (which felt like hours!) and get right to the truth that eventually came out.  The VP felt as if previous sales tax advice given to him was too difficult to implement.  As such, he ignored it and it was business as usual for him.

Ouch!

Update on the CFO: He had a hard pill to swallow when I calculated the unpaid sales tax.  Even though they were using cost-plus contracts, the tax wasn’t budgeted in the bidding process, change orders weren’t being accepted, and some of the contracts had already been closed.  Therefore, they couldn’t go back to their customer for reimbursement.  That meant that the 5% profit margin they were expecting got shaved down quite a bit for the sales tax that had to come out of their pockets.

Update on the VP: The last I heard, he still works there and has miraculously embraced sales taxes.

When you give your employees the tools to help sustain profitability, how do you make sure they use them?


Is Now the Time to Strike Deals with Sales Tax Auditors?

In Audits on September 2, 2011 at 10:45 PM

A friend of mine (let’s call him Speedy) told me about a recent traffic ticket. The officer was shooting radar at the bottom of a hill and clocked him doing “a little” over the speed limit. When the officer asked Speedy how fast he thought he was going, his alleged response was: “I’m not totally sure, so how about I turn around and give it another shot to see.”

I’m not 100% convinced that Speedy’s story was true, but it’s still funny. Can you imagine trying to negotiate with a police officer?

What about striking deals with sales tax auditors?

Before the economic downturn: Sure, but make sure you have your ducks in a row and your offer is solid.

In our current economy: Fuhgeddaboudit!

Let me be fair, it’s still possible to strike deals with sales tax auditors. However, it’s a lot harder to do these days.

In more prosperous times, the promise of a check in 48 hours could grease the wheels of progress and everyone was happy.  Today, it takes a solid understanding of sales tax law, familiarity with industry standards in sales tax, and great relationships with the taxing authorities.  An advisor that can do this for you is worth every penny.

Now, if your a mega online retailer (I won’t say their name but it starts with “Ama” and ends with “zon”) and you can afford to offer deals in the $100 million+ range, the rules of the new economy get thrown out the window!

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