As states grow aggressive, more companies turn to firms for advice.
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As states continue to grapple with huge budget deficits, more are turning to sales and use taxes as a way to collect cash.
Companies that previously could fly under the local government's radar screen are suddenly being hit with expensive audits.
And who's the first person those companies usually turn to for help? Their accountants.
Problem is, many accountants don't specialize in state and local tax, commonly called SALT. So some of them are reaching out to consultants who do.
Riley Epps ventured into sales tax two decades ago working for Deloitte and has since started two of his own SALT consulting companies.
His most recent venture, State Tax Advisors, is based in Kingwood, Texas, near Houston, but works with more than 500 firms throughout the country, performing SALT diagnostic reviews for their clients.
In some cases, the reviews are free as a way to get in the door. Other times, he charges an hourly fee and the process can take from four to 40 hours, depending on how complicated their business is.
"We give them a detailed report of findings that identifies everything they're doing right, what needs improvement and recommendations. We flowchart the processes," Epps says, adding that he also conducts reviews for property, franchise and income taxes, all of which have resulted in work.
Most CPA firms are familiar with the term "nexus," which by definition means a legal presence in a given state. But what determines nexus varies greatly from state to state and even within jurisdictions, and some are in the process of expanding their nexus statutes, especially for Internet sales.
When a CPA recognizes that one of his clients has nexus but doesn't have a SALT group in house and doesn't have a partnership with another firm, Epps says that CPA could run into trouble.
"In desperation, they try to help (the client) and now they're getting into a field they know nothing about. They can get sued for providing the wrong advice or issuing a clean opinion on an audit when they should have recognized a problem," he says.
For example, one multistate business he encountered was renting equipment all over the country but didn't think it had nexus outside of the state where it had a physical office. Auditors signed off and it was later determined the company had nexus in every state and owed more than $1 million in sales and use tax.
State Tax Advisors provides financial auditors in smaller firms with a checklist of the appropriate questions to ask to make sure there are no material mistakes or liability issues.
Epps also helps with the continuing compliance, filing 15,000 returns per year using CCH's Sales Tax Returns Online calculation product, part of the vendor's CorpSystem Sales Tax Office suite of both Web-based and on-premise products.
The full suite starts at $15,000; Sales Tax Returns Online at roughly $3,000 annually.
It is this technology that allows his 17-person firm in the Lone Star State to handle so much work and which will allow him to expand to offices in other states, with six more employees starting this year as he predicts State Tax Advisors could start filing 50,000 returns in the not-so-distant future.
"States are obviously hurting for money. They're expanding their nexus teams to go out and find companies that are not in compliance," Epps says. "They're on a fishing expedition-They try to make money as fast as they can by sending questionnaires around the country, increasing audits, increasing our business."
Combining CCH's tools with his own online portal, Epps provides a proprietary offering called State Tax Advanced Reporting Solution. STARS serves as an electronic warehouse of his clients' tax reporting and compliance returns and notices. It provides query and sorting tools to produce management reports for comparative data and trend analysis. It also manages certificates, tracks credits and provides tax calendars.
A password to this portal can be given to auditors to perform an electronic inventory of all the client's invoices instead of going to the client's office, and Epps is working with CCH to automatically move information from its tool into his to help improve workflow. CCH's tools already integrate with Microsoft Dynamics ERP products, along with Sage's MAS line, Accpac and Sage Pro.
Partnering for Protection
Ninety-nine percent of Epps' business comes from referral. Some firms send him $5,000 a year in fees, others send $50,000 and one sent as much as $400,000, though Epps says that was a one-time "fluke." No matter what the amount, he always tries to return the favor.
Other consultants are catching on, looking to partner with accountants who either can't take on the extra compliance work or don't want to take the risk.
Montana is one of a handful of states that doesn't assess sales tax, but that doesn't mean Irene Bushnell, a Certified QuickBooks ProAdvisor at Anderson ZurMuehlen, isn't looking out for her clients' SALT liability, even though most of them are based there, as she is.
"More sophisticated businesses with 200 employees are already all over that because they have the staffing and skill set in place," she says. "The mom-and-pops are the ones that really need that help."
For example, several of her smaller customers who are producing goods with the "Made in Montana" label, including one woman who sells huckleberry jam from her kitchen, are starting to sell those products on the Internet.
"She's got to have in place the software to help her do that because she can't learn sales tax compliance and monitoring, she's got to make jelly," Bushnell says.
And while she doesn't see a present need for most of her roughly 2,000 clients to invest in compliance systems because simply selling over the Internet does not establish nexus, what is not an issue today may cause a problem in the future as more states push legislation to collect more revenue.
Industry pundits point to the following scenarios that could potentially ding one of those mom- and-pops:
* Attending trade shows in other states may make them liable for sales tax in that state if they sell a product at that show.
* Using vendors for third-party drop shipments in other states may require them to collect sales tax based on that third party having nexus in a particular state.
* Making deliveries in any neighboring states using a company vehicle.
* Using third-party contractors in different states to perform repair work on their products.
Until recently, Bushnell says, Anderson ZurMuehlen didn't really have a plan to refer clients if they needed help with sales tax issues.
But the firm partnered with Forepoint, whose U.S. president, Kevin Cumley, had just relocated to Montana from Seattle last May and had added QuickBooks Enterprise Solutions and sales tax offerings from SpeedTax to the Accpac product line his company sells.
While both firms are competitors in the QBES space, Bushnell and Cumley found areas where they could fill in the gap for one another, particular sales tax. SpeedTax's integration with QuickBooks was an extra selling point for Bushnell. The cost ranges from 10 to 45 cents per transaction.
"We want to be proactive and start making our clients aware of changes that may be coming," she says. "Once we get the word out to our employees and Forepoint has a chance to share information with them about SpeedTax, I wouldn't be surprised to find some clients that may have an immediate need."
Although sales tax is new to Forepoint, Cumley says he's confident because of the tools SpeedTax provides him with that he, in turn, offers prospects for free on his own Web site. These include a questionnaire to help determine liability and a sales tax calculator they can download for their desktops which allows them to type in an address and sale price and instantly get a correct rate and total sales tax amount.
SpeedTax also planned in April to release its Sales Tax Audit Risk Calculator, to give businesses an instant snapshot of their risk level based on a handful of key questions.
Cumley believes the need is great enough for compliance in this area, that he could lead with it when speaking to prospects.
"Every single conversation we've had with customers, we're talking about sales tax. It's one of the six to eight bullets we see we could help them with," he says.
In April he planned to start an aggressive awareness campaign encouraging companies to act before the auditors come knocking, and was in the process of reaching out to more CPA firms in Montana and Seattle, followed by Oregon and Wisconsin, where Forepoint already has ERP clients.
Cumley is careful not to step on Bushnell's toes, drawing up a non-solicitation, non-compete agreement and tapping her 26 ProAdvisors for QuickBooks training and ongoing support of his clients.