Anybody been Audited for Sales Tax?

[Coogie]

We got a nice letter from the Comptroller's office letting us know we're going to be audited. Most of the services we provide are not taxable, but to play it safe we got a sales tax ID a couple of years ago for the few things that are, but I'm sure he'll find some things that are not kosher. Anybody here have any experience with these guys and had a super pleasant audit? Our CPA does all the IRS stuff but I unfortunately do this particular tax.

[jonnydonut]

What services do you provide? As far as I know every photographic service is taxable unless to a non-profit, out-of-state or re-sale.

[Coogie]

Oh this isn't photography. We do electrical work. From what I understand residential service isn't taxable but commercial work is. We always pay sales taxes on the parts we use which I heard they don't like either so that would probably be the biggest issue.

Also, I read the flyer they had on photography which is pretty clear. I wish they had one for every major industry and the unique issues they deal with.

[Gabby498]

Arnie, not to scare you and others but to forewarn you of the potential. First off, I have never heard of a “pleasant” sales tax audit experience. I will say this, after an audit you begin to take your sales tax obligations and records very, very seriously.

My only experience was some years ago in a retail situation that dealt almost exclusively with retail business rather than a service industry such as you are doing. It went pretty well. After the audit is completed, they will give you some time to clear up the problems that they have found. In my case, it appeared to be going very well. I was extremely pleased to come out so clean since I was the person responsible for seeing that all the sales tax transactions were properly handled. That was a job that I took very seriously because our parent company had been hit with an audit a few years earlier that almost put them out of business. In the end, we were able to clear up all but about $125 that we could not prove that we did not owe. Not much more than pocket change.

Then they did their thing and extrapolated that amount across our entire sales for the audit period. They make the assumption that if you have messed up this much on the transactions that were actually audited that you messed up that same percentage on the items that were not checked. After extrapolation we owed the State of Texas some $15,000.00.

So either hope that you have your tax ducks in a row or that you haven’t made much money during the audit period. It is a good idea to keep your Texas Sales Tax records in excellent shape with all the T’s crossed and I’s dotted. I have also noted that audits seem to be more prevalent during tough economic times. You’re hurting for money and so are the State’s tax coffers. Texas is in better shape than most right now but they work on the presumption that when we are not making much money there will be a shortfall in their future.

Arnie, spend your time now organizing your tax records and I hope your experience, which will not be pleasant, is at least not as unpleasant as mine.

[Coogie]

Thanks for your insight Gary. This will not be fun. We're hoping that at least we will know what we're doing wrong so we'd put a stop to it. In a way, I think retail would be easier because we'd just tax everything.

[Steelsun]

I've been involved with 2 of them with a former company I worked for - the ones we had with the IRS were actually "gentler" than the state Comptroller.

And just because you are a service, does not mean there is no sales tax involved. The company I worked for that had the audits ONLY provided services (investigative), yet you pretty much had to tax EVERYTHING. (The big "ding" we got hit with was not adding sales tax to reimbursable expenses like hotel stays - even though we paid the outrageous tax when staying at the hotel, we still had to charge regular sales tax when we submitted it on an invoice to the client - talk about double taxing!)

[Coogie]

Originally Posted by Steelsun

(The big "ding" we got hit with was not adding sales tax to reimbursable expenses like hotel stays - even though we paid the outrageous tax when staying at the hotel, we still had to charge regular sales tax when we submitted it on an invoice to the client - talk about double taxing!)

lol in that case we're just plain screwed then!

[bondarnes]

I had a sales tax audit about 15 years ago. Our figures were pretty accurate and we documented each time we didn't charge sales tax. They had a couple of suggestions about our record keeping, but no additional taxes were due. All in all not too bad. Our motto is, "When in doubt, collect and remit sales tax."

[Fireball]

Since I'm in the middle of getting my sales tax permit, can I ask some more questions?

When you say to tax everything that also means sitting fees, right?

And when do you turn in the sales tax to the state? On your tax return when you file once a year? So you must keep very accurate records all year and write a check at the end and make sure you haven't spent that money, right?

[smdebnam]

Originally Posted by Fireball

Since I'm in the middle of getting my sales tax permit, can I ask some more questions?

When you say to tax everything that also means sitting fees, right?

This link will be helpful! http://www.window.state.tx.us/taxinf...s/tx94_176.pdf

[janikphoto]

Originally Posted by jonnydonut

What services do you provide? As far as I know every photographic service is taxable unless to a non-profit, out-of-state or re-sale.

I shoot a LOT of magazine and newspaper work. It all goes into a bigger product that gets sold to a final customer. That final customer pays sales tax to the paper/magazine, and they pay the state. I also have some corporate companies that are using my images for PR purposes. They can deduct the expense from their federal taxes, but MUST pay state sales tax. My sales taxable income is only a small percentage of my total income. Of course, I can prove that with copies of the sales and use tax resale certificate filled out by my exempt clients...

Originally Posted by Fireball

Since I'm in the middle of getting my sales tax permit, can I ask some more questions?

When you say to tax everything that also means sitting fees, right?

And when do you turn in the sales tax to the state? On your tax return when you file once a year? So you must keep very accurate records all year and write a check at the end and make sure you haven't spent that money, right?

You do NOT file this with your federal return. This goes to the state. You file before January 20 or 22 (somewhere right around there), or you pay a small fine if you are late. You fill out a one page form and submit your collected tax. For huge companies that collect a ton of tax, I think you are required to file quarterly? I don't know, because I collect so little each year. Also, I think you must keep the currently filed year, plus three prior... Don't quote me on that, though.

The ASMP Dallas chapter is actually setting up a TX state sales tax workshop. I'll let you know when we have a date and location!

[bondarnes]

Originally Posted by Fireball

Since I'm in the middle of getting my sales tax permit, can I ask some more questions?

When you say to tax everything that also means sitting fees, right?

And when do you turn in the sales tax to the state? On your tax return when you file once a year? So you must keep very accurate records all year and write a check at the end and make sure you haven't spent that money, right?

Since you are in Oklahoma and most on this forum are from Texas, our advice doesn't apply to you. Each state has its own rules, so you must follow the rules for Oklahoma. In Texas sitting fees are taxable unless no images are ever ordered from the session. Since I always assume an order will be placed I charge sales tax on my session fee.

[Imagebuffet]

How do you know what is taxable and what isn't?

[bondarnes]

Originally Posted by Imagebuffet

How do you know what is taxable and what isn't?

If you assume everything is taxable and you collect and pay that tax you will be OK.

[AndrewCCM]

Originally Posted by Imagebuffet

How do you know what is taxable and what isn't?

Contact a CPA.

But as Don suggested... collect on everything.

I actually had a local pro sports team send me a check for sales tax due 3 months after the fact on a shoot I did for them and forgot to charge tax. At the time, I thought it was non-taxable since it was for product that was to be sold. However, it was also used in promotional material and online advertising, so I was wrong. My problem... I didn't file it last quarter...and I just received it this quarter. Wonder if I just pay it this quarter or do I need to file some sort of addendum since technically it's late. I'll probably take my own advice and ask a CPA. I work for a company that has like 50 CPAs on staff, so that shouldn't be a problem. LOL