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My daughter and future son-in-law are both CPAs working for a local CPA firm. They work in audit, not tax, but we often talk ‘shop’ at family dinners. (Needless to say, my wife and other daughter do not enjoy our ‘CPA talk’ at dinner.)  

This Sunday, we were discussing the upcoming audit busy season and their schedules for the next four months. Basically, they will be working a lot the next 4 months and we will have to work much harder to spend time with them during this period. This talk of busy season reminded me of what we face over the next 6 months as we work with our CPA partners. Specifically, it is very hard to get their attention on sales tax matters for their clients!

In this blog, I am going to make it easy for CPAs to think about sales tax matters and not add any work to their already overloaded busy season.

Sales tax risk takes the form of unpaid, uncollected or underreported sales tax in all states in which your clients are doing business. You can quickly identify these risks during a routine compilation, review or audit if you ask the right questions.

Following is a checklist of questions to ask your clients in the normal course of your engagements:

  1. Have you grown your business by selling to customers in new states? If so, what is the process to generate revenue in those new states – sales people, contractors, installs, etc.?
  2. Have you added employees in states where you previously did not have employees?
  3. Have you established any significant vendor relationships relative to expanding your reach into more states?
  4. Did you launch any new products or services during the year?
  5. What is your process for identifying transactions subject to sales tax and calculating sales tax for invoicing to customers?
  6. Do you have a sales tax accrual on your balance sheet? If so, do you have a reconciliation of that accrual by state?
  7. Do you have any outstanding inquiries from states regarding your business activities or sales tax specifically? Do any of these inquiries include state tax audits?

 

As a CPA, you will know if your client’s answers to these questions seem credible and reasonable. If their answers are not reasonable or they are hesitant to make any definitive assertions, you should assume your client needs some education about sales tax and its impact to their business.   Your next step is to call TaxConnex. We can provide a more thorough analysis of your client’s sales tax liabilities in a thirty-minute phone call with them and you can continue with your primary tasks for your clients.

I know busy season is going to be tough for most CPAs, but it also gives you a great opportunity to identify risk for your clients and demonstrate why they hired you to be their trusted advisor.

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Robert Dumas

Written by Robert Dumas