News flash! Understanding the Tax Code is not the easiest thing to do. Researching the correct sales & use taxability treatment or even understanding how to correctly complete a tax return or form can be a frustrating prospect. The good news is that almost all jurisdictions provide free resources to help taxpayers. The Comptroller, Department of Revenue and other taxing authorities routinely maintain websites that contain publications, Frequently Asked Questions and other tools to help business owners. Other resources include the pertinent Tax Code and state tax agents, who are more than happy to assist you.
Taxing Authority Websites & Publications
Websites can be very helpful in clarifying the applicable rules and policy positions of a taxing authority. But, sometimes complex issues like taxability, nexus, registration requirements, etc. cannot be resolved by reading the Frequently Asked Questions section of the website or with a call to the taxing jurisdiction. Websites are only as good as the information on them. I have found old, superseded information on state tax authority websites. I have also found information that was just plain wrong.
Department of Revenue or Comptroller Representatives
If the idea of incorrect information on the website scares you, try calling the Department of Revenue or Comptroller for a quick answer. Good luck with that! Department of Revenue or Comptroller employees are like anyone else. They sometimes get things right and sometimes get them wrong. The answer you may receive on Monday can be different that the answer you receive on Tuesday.
But, if you contact the state tax authority and relied on the wrong answer that an agent gave you, you are okay if you get audited, right? Wrong! Tax authorities are not required to stand behind the erroneous information that you received from their agent. The onus is on you to get it right, even if they told you something wrong. All of this is enough to make you want to rip your hair out.
Obtain the Tax Code reference, etc.
But never fear, business owners have a several options when addressing their sales and use tax questions. You can figure it out for yourself. Make sure that there is a Tax Code reference from the appropriate taxing jurisdiction to hang your hat on. For example, if you call the taxing authority and they tell you something is taxable, take a note of the day, time and name of the person you spoke to and ask for the Tax Code reference. If you send a question via email to the taxing authority, ask for the Tax Code reference to support their response.
If may hire a sales tax consultant to do the research. If you do, the same thing applies to your sales & use tax professional. Make sure that there is a Tax Code reference or other statement of policy from the appropriate taxing jurisdiction to hang your hat on. Read the Tax Code reference that they give you. It must address your tax issue.
NOTE: You can also submit a tax query to the taxing authority directly and receive a response that is tailored to your situation. The availability of the option and how attractive the option is varies by jurisdiction.
Beware of sources without a Tax Code or other regulatory reference
Some business owners just ask other business owners in the same line of work or just google the answer. I caution against this. Other business owners get things wrong too. The Comptroller is notorious for hitting certain types of businesses (Hi contractors!) because they know a lot of you get it wrong. Googling isn’t your best friend either. Out of date answers and wrong information can be found there. Plus, it is the internet. If you believe everything you read on Google, I have a story to tell you about Bigfoot and Papa Smurf vacationing in Big Sur this weekend.
Spies and security types in movies also say, ”Secure the package.” Your mantra for a taxability response is “Get the Code.” Make sure you have the Tax Code reference and that it adequately addresses your needs. Word of mouth isn’t good enough, especially if your business is complex. It is your business. It is up to you to make sure are proactive and that you understand your sales and use tax responsibilities.
For more information on how knowing taxability and making it clear on your invoices impacts you, visit Clear and Concise Invoices–The Lifeblood of an Audit.
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