Sales Tax Refund Studies
Dedicated, Experienced, and Focused
Sales Tax and Sales Tax Revenue
According to FY21 data published by the Tax Foundation, sales taxes make up 29.52% of state tax revenue with the average state tax rate of 6%. However, states like South Dakota and Texas generate over 60% of their state tax revenue from sales taxes. While four states impose no state and local sales taxes, ten states have combined state and local sales tax rates that exceed 8.50%.
With the Wayfair decision at the US Supreme Court in 2018, more states impose nexus thresholds on out of-state retailers to collect sales tax on their shipments on customers in many more states. Therefore, businesses are paying much more sales tax on invoices as part of their accounts payable process. Without proper procedures in place, more sales tax may be paid to vendors on a company’s purchases.
What Does a Sales Tax Refund Study Do?
Similar to the review a state auditor performs to find underpayments of sales tax, a refund study reviews purchases to determine if the systems in place are properly paying sales and use tax on the company’s purchases. Usually, a preliminary review is performed of fixed asset purchases
for the period open under the statute of limitations and then some sample of expense purchases is also examined. This could be based upon a statistical sample, a period of time (month or year), or a selection of transactions (specific general ledger accounts). Based upon this preliminary
review, the study can be expanded to the entire period open under the statute of limitations (usually 3-4 years), This can at any point in time. If the company is currently under a sales tax audit, a study can be performed but you may want to perform the review consistent with the method being used by the state agency.
These studies are performed by accounting firms, boutique consulting firms, and other consultants. It is always best to understand their specific experience with your specific state and your industry and who will be on site performing the review. Fees should only be based upon refunds for prior periods and should not include fees for savings for future periods in most cases. You should always feel comfortable that the filing of a refund will not trigger an audit that will create a larger liability than the refund requested.
For more information, contact us or call (920) 450-1411.