Companies are often challenged when it comes to state and local tax audits. Auditors take a “guilty until proven innocent” approach to assessing tax, penalties, and interest, with the burden of proof in rebutting such assessments falling to the taxpayer.
In addition, most auditors ignore tax overpayments, leaving it up to the taxpayer to engage the right expertise to help reduce assessments asserted by the state.
Following is an interview with Ed Ben, Director, Transaction Tax Practice, SC&H Group, who shares some insights into why companies should be proactive and aggressive in their Audit Defense strategy.
Q: What are the biggest challenges taxpayers face when looking at the transaction tax terrain on the state level?
Ed Ben: First, major corporations that do business in multiple states face a highly complex tax landscape, with each state having its own taxing definitions, varying exemptions, and differing interpretations of seemingly similar statutes.
Further adding to these complexities are the 9,600 taxing jurisdictions in the country, each with its own state, local, county, and special district rates to consider. For businesses with a vast footprint, incorporating these complex nuances into the compliance and reporting process can be difficult. If not implemented correctly, a compliance and reporting system can lead to underpayments or overpayments of transaction taxes.
The fundamental building block of a strong audit defense strategy lies in ensuring that a corporation’s compliance and reporting process is implemented so that only the correct amount of tax is captured and reported. Cutting corners during a system implementation, or not developing a well-documented process, will only cost you money in the long run.