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Sales & Use Tax Diagnostic Review

Why Should A Company Conduct A Diagnostic Review?
Companies that operate in multiple states or have experienced rapid growth often do not have the time or resources to be sure they are complying with the various tax laws in each state. In addition, most states' statutes and regulations are convoluted and confusing. This results in many companies having unrecognized Sales & Use Tax liabilities, potential Sales Tax refunds, and possible savings opportunities due to unrecognized state and local Sales Tax exemptions and/or exclusions.

We can alleviate this burden and possibly save you tax dollars by doing a pre-emptive review of your current compliance functions, with the objective of identifying and resolving any material Sales & Use Tax exposure, identifying states in which the company has a sufficient presence in to be subject to Sales & Use Tax compliance obligations, and evaluating which services and products are subject to Sales or Use Tax.

What Will Sales Tax Colorado Do?
We will obtain a detailed understanding of your company's multi-state activities and products and services. We will review your books, records, invoices, current compliance procedures, and the taxability of your products and services to identify if your company has a Sales & Use Tax collection and filing obligation in a given state. We will expose areas of potential Sales & Use Tax liability, possible refund opportunities, and saving opportunities due to unidentified Sales Tax exemptions and exclusions. We will evaluate your current procedures in relation to collecting and keeping exemption, resale and direct pay permits in a given state to ensure proper procedures are being used. Once the analysis of your day-to-day operations has been completed and areas of liability or savings opportunities have been identified, we will recommend alternatives to resolve material issues, recommend procedures to reduce a future risk of exposure, and decrease future audit defense cost.

Do You Have Nexus And A Corresponding Filing Obligation In A State?
Nexus is a term used when an out-of-state company has sufficient contacts with a given state allowing the state to require the company to collect and remit Sales Tax on taxable sales. As established by federal case law, for a state to have jurisdiction to tax an out-of-state business, that business must have a minimum connection within the taxing state. Physical Presence is the general legal principle governing nexus as announced in Quill Corp. v. North Dakota, 112 S.Ct. 1904 (1992), National Bellas Hess, Inc. v. Illinois Department of Revenue, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed. 2d 505 (1967), Scripto, Inc. v. Carson, 362 U.S. 207 (1960) and other prominent U.S. Supreme Court cases.

If a seller's connection with a state involves clear physical presence, such as the presence of the business itself, then the seller has nexus and can be required to collect the tax. If a seller's connection with a state is remote, however, and does not meet the legal requirements for nexus, then the seller cannot be required to collect tax. This is a gray area with no consensus among the states regarding the minimum presence required to establish nexus. Some states are pursuing what is termed Affiliate Nexus, seeking to require a business to register and remit Sales & Use Tax due to an affiliate company's presence in their state. A typical example is that of an on-line business entity with no physical presence in a state being required to comply in that state due to the presence of a sister company's brick and mortar store.

Many states will take the position that any contact beyond the most infrequent is enough to create nexus. Generally, every state will have a statute mandating that a retailer engaged in business in the state must collect the Sales or Use Tax. Most state statutes define "engaged in business in the state" very broadly. Regardless of a state's broad definition, the constitutional limitations discussed above apply to the state's ability to assert jurisdiction over an out-of-state retailer. Nevertheless, states generally extend their Sales & Use Tax as far as possible and arguably beyond these constitutional limits. We can help sort out the rules and determine whether your company has sufficient physical presence and recommend whether registration is required or beneficial in a given state.

What Is Physical Presence?
Physical presence is typically found if a business has a permanent presence in the state such as a business location, resident employees, tangible property (leased or owned), an independent contractor, or other third party acting as an agent for a company to conduct business on its behalf. Physical presence may also be found when the business only has temporary presence (i.e., visits by employees or agents), provided the visits are regular and systematic. However, a de minimis presence may still create a Sales & Use Tax collection and filing obligation in some jurisdictions. A number of states have implemented so called “Amazon Laws” to force Amazon and potentially others similarly using affiliates to collect sales tax.

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This web site and the information contained therein is intended to provide general information only, and is not to be considered as a substitute for accounting, consulting, investment, legal, tax, or other professional advice or services. Should you have questions or require further assistance please contact an Sales Tax Colorado Sales and Use Tax specialist.