Statutory Sales Tax Compliance

OVERVIEW: A family-owned service company with 20 + employees, was considering exiting their business and requested a compliance audit on statutory State and Federal deductions.

OBJECTIVE: To ensure policies and procedures are in place with accurate and timely payments being made in accordance, with both State and Federal legislation.

FINDINGS: Payroll was being executed by a 3rd party payroll company, in accordance with statute. Sales Tax had never been paid since inception, as the company carried the opinion that they paid Sales Tax on the consumable or parts at point of purchase. While in essence this sounds logical, assuming you made no markup on the consumable or parts, and your invoices reflected such, the assumption is correct, as labor is exempt from Sales Tax. However, in this instance, company did markup consumables and parts. Further more the invoice reflected a line items called consumables / parts at a resellers price. The difference between the resellers price and the purchase price is taxable, and the provider is liable not only yo charge the applicable rate, but also remit the funds to the statutory body. Failing to do such leaves the company exposed to both penalty and fines. 

SOLUTION:  To remedy, the said challenge it was recommended to the company (i) to implement new policies and procedure to comply with statute (ii) seek legal opinion on how to best deal with historical transactions and address this with the statutory bodies ASAP.