Sales tax audit defense expertise is a specialty that can save a business hundreds of thousands – and even millions – of dollars. Clarus Partners has helped their clients manage these events, which can be extremely anxiety-provoking. Any business owner that is being audited by a state or local taxing authority can be facing information requests and tight timelines, but when there is more than one state knocking on the door at the same time, panic levels can go through the roof. This creates multiple challenges from the management standpoint as well as compliance.
“We have perfected the art of sales tax audit defense,” says Jeff Stonerock, CPA, Partner at Clarus Partners Advisors LLC (“Clarus Partners.”) “We have successfully saved our clients over $1 billion cumulatively.”
In a notable example of Clarus Partners’ work in the audit defense space, their client Legend Networking and Telecom, which provides IT services in many states, was being audited for sales and use tax purposes.
“We had hired another sales tax consultant to help us with our audit initially,” said Camille Monk, Chief Financial Officer at Legend Networking and Telecom. “The results were very lukewarm, leaving us with a six-figure liability. Our new CPA suggested we reach out to Clarus Partners. Even after following up with another service provider who ‘specialized’ in sales tax, Steve Hanebutt at Clarus Partners was able to decrease our audit by two-thirds!”
The final savings for Legend Networking and Telecom was more than $200,000.
Another client, a company in the manufacturing sector, was undergoing a sales tax audit by the State of Texas when they hired Clarus Partners to defend them. Clarus Partners worked with the firm’s customers to secure sales tax exemption certificates. In those cases, the customers – not the manufacturing firm – were responsible to pay the use tax. Clarus Partners also provided additional documentation that served as evidence of out-of-state sales that were beyond the scope of the Texas sales tax audit. In addition, Clarus Partners obtained sales tax refunds the taxpayer was unaware of that brought down both the tax assessment as well as associated interest charges. These efforts resulted in the manufacturing firm reducing their initial liability of $1.1 million to less than $100,000.
A client in the retail sector was initially assessed approximately $700,000 of sales and use tax, largely due to a lack of complete and valid exemption certificates. Once Clarus Partners was brought in, the team worked to reconcile differences in the audit schedules and to obtain the needed exemption certificates. As a result, the initial audit assessment was reduced by more than 80 percent! Additionally, now that the client clearly saw how important it is to maintain the necessary exemption certificates, Clarus Partners was able to implement SmartCert, its leading-edge exemption certificate management solution. In doing so, the client’s next audit three years later resulted in a $3,000 assessment. From $700,000 to $3,000 in three years. This clearly speaks to the expertise and solutions that Clarus Partners brought to the table.
Clarus Partners helped a manufacturing taxpayer with a sales tax audit. The initial audit schedules demonstrated a sales tax liability of more than $2 million. The audit liability was reduced to a final assessment of less than $15,000 because Clarus Partners successfully applied specific manufacturing exemptions allowed by the State of Texas. Other tax consultants without this level of expertise would probably have not been aware of expenditure exemptions involving energy consumption and industrial waste disposal. These exemptions reduced the audit assessment substantially and the taxpayer also received refunds of overpaid sales and use taxes, roughly $600,000, with Clarus Partners’ help.
Clarus Partners successfully defended a contracting client in a Kansas sales and use tax audit situation. Here, the amounts in question were much smaller than those in the above examples, but the client was also much smaller. Sales and use tax laws in Kansas related to contractors and real property improvements provide an exception that favors taxpayers in one of the tax imposition statutes. This was and is a long-time vendor relationship, so this result will provide benefits for years to come.
These examples demonstrate that sales tax audit defense starts with an integrated and robust exemption certificate management system (“ECMS”), preferably one that does not break the bank. Clarus Partners has created its own proprietary ECMS solution called SmartCert. SmartCert is becoming the industry leader in value and service.
Sales tax audit defense is a specialty. Properly managing such an audit is an art. Those being audited need to engage the right firm with the right experience and expertise. For taxpayers needing help with their own sales tax audits, a call to Clarus Partners could result in a success story like one of these.
Clarus Partners can be contacted through their website.
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Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Edition Biz journalist was involved in the writing and production of this article.