Trying to hide from auditors or cover up a poor tax strategy? Lack of an effective process puts your organization at risk of a use tax assessment that could reach or exceed $1M. Because P-Cards are associated with a different purchase-to-pay process than other payment methods, they also require a different approach to managing U.S. sales tax compliance. While tax is not a topic many people embrace, you can satisfactorily address it. To help you improve, I consulted with tax veteran Greg Anderson, Application Design Resource, LLP (ADR), to compile the following plus additional tax content.
Compliance Begins with Teamwork
Greg observed that, most of the time, the P-Card program management team and the internal tax group never communicate. Like cats and dogs, they do not typically understand each other’s worlds or establish a relationship. For instance, the tax folks do not know what type of P-Card data is available, which is unique compared to other payment methods, so they do not know what to request when trying to resolve an issue. If you manage a P-Card program, do not assume that the tax group is handling your tax compliance. Schedule a meeting with them today.
The Auditor is the Alpha Dog
Understand that the auditor’s job is to make sure your organization accrues the correct amount of use tax on taxable purchases for which the supplier has not collected sales tax. A tax assessment to your organization will occur if the auditor cannot find documentation of either the payment of sales tax or the accrual of use tax; for example, if receipts or images are not available/missing or no longer legible because of mishandling or fading.
Implement an Effective Process
If your organization does not have an established tax compliance process for the P-Card program, you could find yourself scooping up the remains. The auditor’s only option is to work with a larger sample and request hundreds of receipts for the full statutory period. This can be frustrating and time consuming for both the auditor and your organization. Larger samples may also include more errors, which increase the amount of the assessment.
Learn from the Tax Audit Results
While very few people enjoy a tax audit, it is no reason to bury your head in the ground. Through the results, the auditors are giving you a bone that can be a valuable contribution toward making your program more tax efficient. If your organization receives an assessment, ensure you make accruals on those purchases going forward. If the auditor found over payments—your organization was accruing use tax on transactions where the supplier was already collecting sales tax—end that practice going forward.
Additional Tax Content
About the Author
Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…