Overtaxed and Under-Reviewed: A Simple Way to Save Money

By Jesse McCurry | September 08, 2008
If a plant advertises, employs salespeople or delivers products out-of-state it may have nexusa tax term used by the federal government to define a business presence or activity within a state. Every state has nexus rules and employs government personnel to search for unregistered companies not paying income or sales-and-use taxes inside its borders. If a plant is audited and has not followed state nexus rules, the cost could be significant. On the other hand, a plant may often pay too much in sales tax and may be due a tax refund of thousands of dollars.

As a former tax auditor covering the Great Lakes, Great Plains and Ohio Valley regions, Kennedy and Coe's Carole Brady has 17 years of first-hand experience with state tax laws.

She says that many plant managers have overpaid sales-and-use taxes, and are due a refund. "On the purchase side, a plant manager might miss paying sales tax on supply items or repair parts," Brady says. "They might have a good handle on fixed assets and big pieces of machinery but when it comes down to repairs, greases, oils, propane, gases, warehousing equipment or machinery, there are a lot of what ifs.'"

Brady says activities can include using contractors, maintaining a sales office, warehouse or distribution center, advertising via flyers, print ads, radio, TV, mail or phone, participating in trade shows and delivering products in a personal vehicle.

"I would review a plant's out-of-state activities, such as where advertising dollars are spent and if salespeople are authorized to approve credit and make agreements," she says. "One state has a threshold where a business can attend five trade shows, while another requires a plant to register before attending only one. If you advertise every week, a state may want you to register, but if you're only advertising twice a year it might be OK."

If Brady finds an overpayment of sales tax for a plant, she will file for a refund. Most often a plant would be due these overpaid dollars. If she finds a business has not paid taxes appropriately when purchasing big items, corrective measures would be put in place.

It doesn't matter what accounting firm performs a plant's state or federal income taxes. Brady says an interactive review can be a one-time service that can save a plant thousands of dollars in the long-run.

"Managers don't think about this issue, or if they haven't been audited yet, they think, What's my risk?'" Brady says. "But it's critical to know the depth of the law on state tax."

Jesse McCurry is a business development specialist at Kennedy and Coe LLC. Reach him at jmccurry@kcoe.com or (316) 691-3758.