Companies are always seeking ways to cut costs and save money, especially on sales taxes.
However, companies frequently overlook a significant opportunity to reduce their costs – namely, state sales taxes. Companies usually pay such taxes with little thought as to whether they can reduce or eliminate such taxes. The fact is, most purchases companies make are never reviewed for accuracy. Sales and use taxes are the most overlooked. Real estate taxes, as well, are typically considered unassailable. The problem with this thinking is simple…it’s wrong.
In Texas, for example, the Texas Comptroller’s office serves the state by collecting more than 60 separate taxes, fees and assessments, including local sales taxes collected on behalf of more than 1,400 cities, counties and other local governments around the state. Does this shed some light on the difficulty most businesses face when dealing with taxes?
The following list offers just a few types of opportunities in Texas that are available if a company knows where to look. Similar opportunities exist again in most other states as well. Let’s look at sales tax.
One of the largest opportunities for sales tax refunds relates to the hiring of contractors and construction contracts. Most states imposes sales tax on many services relating to real property, but such services are exempt if performed as part of “new construction.” To protect themselves, contractors almost always charge sales tax on such services without regard to whether they relate to new construction. Additionally, whether a construction contract charges a lump-sum or provides itemized billing, states various charges can also impact the taxability of property and services.
- Texas exempts manufacturing equipment, which can apply in many surprising and unexpected situations. Two examples…1) Texas exempts computers used to write software, and 2) Texas exempts ovens that are used by restaurants.
- Frequently, companies unwittingly pay sales tax on nontaxable services because a vendor fails to separate charges for taxable goods and nontaxable services.
- Income/Franchise Tax
- Companies fail to take full advantage of opportunities to “apportion” their income out of a taxing state and therefore overpay income/franchise tax. Further, the Texas franchise tax is a very complex tax that offers many opportunities for deductions that companies are not aware of or fail to recognize. Many other states have similar laws.
- Companies can take simple steps to prevent states from having the right to impose income/franchise tax in the first place (known as “nexus”).
- Property Tax
- Companies often fail to take full advantage of tax abatements and other available incentives. Examples are freeport exemptions, elective alternative methods to apportion the value of movable property, and alternative valuation methodologies.
Significant changes to federal and state tax laws, such as recent federal stimulus packages and the relatively new Texas franchise (margin) tax, are coming ever more common as governments desperately try to raise more revenue to meet budgetary shortfalls. States are also becoming more aggressive in imposing sales and use taxes on Internet sales. Federal, state and local taxes can often be minimized by proper planning techniques and the proper drafting of business documents.
A simple review of all purchases and sales transactions is the simplest method of verifying tax compliance. Of course, this just doesn’t happen. Our recommendation is to engage a competent tax attorney trained in all forms of tax audits. Fees range from hourly to a contract rate. While still others use a “no recovery, no fee” basis. Virtually all quality tax attorneys provide a free initial consultation.
We recommend Dallas tax attorney, Jon Wellington. Jon Wellington PC is a full service law firm that specializes in IRS Audits, State Tax and Use Audits, and Franchise Tax issues. Jon Wellington services both state and local tax issues. Jon can be reached at (972) 432-6690…or email him at Jon@WellingtonTaxLaw.com.
Direct any questions or comments to Jon Wellington; or, you may contact…