But it’s unlikely any of your road warriors are thinking about interstate tax issues when they submit their reimbursement paperwork.

Make it part of your process to flag any “non-travel” purchases you see on expense reports or corporate travel cards. The biggest red flag you want to look for: any items that were purchased out-of-state and brought back to your state to be used by the employee or someone else at your company.

Meals, taxi fares, hotel stays and any other products or services that are meant to be bought and used “on-site” by the traveler are usually safe since the vendor includes any relevant taxes in the transaction.

Tax compliance has never been easy — and mistakes are always costly. But it seems the situation is about to get a lot worse. Transaction taxes — sales and use taxes, VAT, etc. — are all expected to see more enforcement and stepped up penalties in the next year or two.

The reason is simple: States need more funds, and lawmakers don’t want to hike the rates of voters who are already feeling pinched.

In fact, the signs are so ominous, 88% of companies said they expect to see more audits in the near future. That’s according to recent research from Sabrix.

What it means for Accounting

With more audits — and auditors who are less likely than ever to cut you some slack — even a small compliance error can snowball into big fines.

Take some time now to review your books and procedures. If there are any errors lurking in your books, you’ll want to find and fix them now — before auditors show up at the door.

Another good idea: Have a refresher meeting (or at least a memo) to remind other key department heads about the importance of getting Accounting the information you need.

Other departments don’t always realize the tax implications of, say, moving a piece of equipment from one facility to another. It’s vital they understand that you’re asking for transaction details not just because “it’s procedure,” but because  it can have serious consequences to your company’s tax compliance.

It’s a problem because a card statement may not give you all the detail you need to confirm what portion of the transaction is taxable, what sales tax rate applies, or even whether or not the vendor already collected the tax.

That leaves Accounting trying to do a lot of detective work come year-end.

To minimize the hassle to you, talk to upper management about implementing one of these three steps to improve compliance — and eliminate some of your headaches:

1. Have your card issuer limit where and how cards can be used. Some of the criteria you can use are vendors in certain geographic locations, vendors that you know are required to collect tax, etc. This is the easiest option for Accounting, but purchasers may gripe about having limits placed on how they can do business.
2. Allow cards to be used at all vendors — but make purchasers responsible for confirming that applicable sales tax is included in the final charge. This is a good option if you trust purchasers to have the experience — and the time — to actually do all the follow-up.
3. If you can’t limit where/how cards are used, you need to have a procedure in place to check that there are no lingering sales tax liabilities on your books. Going line by line through each transaction is the safest, most thorough way to do so — but it takes a lot of time you probably don’t have. Alternative: You can probably use mini-audits or sampling techniques (where you base your total sales tax liability on a random percentage of transactions.) Just make sure you check with your state department of revenue to ensure the method you choose passes muster with their requirements.

About 50% of use tax errors are the result of basic accounting errors (transposed numbers, using the wrong rate, etc.)

Cleaner controls can slash the amount of potentially costly mistakes that could be lurking in your books. To create controls that are as airtight as possible, ensure you have systems in place to address the most common causes of those errors:

1. Confirming info that comes from vendors or purchasers, and
2. Keeping up to date on frequently changing local rates.

A recent ruling will save a lot of money for one company — but probably has its customers a little confused.

After a lengthy dispute in Great Britain, the city of London ruled that Pringles — the popular potato-chip-like snack — are not potato chips.

It’s a key distinction, because potato-derived snacks (made from potato flour, potato starch, etc.) are subject to a 17.5% London sales tax. Pringles’ key defense was that the “crisps” aren’t made from potato — they’re just slices of baked dough.

The snack met the judge’s very “technical” three-pronged requirement for exemption:

1. They don’t look like a chip
2. They don’t feel like a chip, and
3. They don’t taste like a chip.

It begs the question: If they aren’t potato chips, and they aren’t made from potato …. what are they exactly?

The Small Business & Entrepreneurship Council (SBE) recently released “Business Tax Index 2008: Best to Worst State Tax Systems,” which ranks states according to how much their tax systems cost companies.

All told, the report measures systems over 16 different measures, including taxes on income, property and unemployment.

You can check out the details of the report, but we’ve got the overall results here. The five best state tax systems are:

1. South Dakota
2. Nevada
3. Wyoming
4. Washington, and
5. Florida.

Of course, it wouldn’t be a contest without losers. The five worst systems are:

1. Washington D.C.
2. New Jersey
3. Minnesota
4. California, and
5. Iowa.

Will the nation’s capital be able to hold onto the title for next year? Only time will tell.

Iowa Department of Revenue has just announced an increase for the state’s sales and use tax rates.

Beginning July 1, 2008, the rate will be increased from 5% to 6%. The new rate applies to:

• sales of tangible personal property
• waste collection and disposal
• bundled transactions
• utilities, and
• most telecom services.

But while you’re noting the change, here’s an early heads-up for another change: DOR also announced the rate will be reduced from 6% back down to 5% effective January 1, 2030.

No wonder it seems like you have to keep running to stay ahead of all the tax changes thrown at Accounting pros: In sales and use taxes alone, there were 739 rate changes last year. Not to mention all the “reinterpretations” of the rules and definitions that states like to introduce that wind up making more products — and services — taxable. That’s according to the newest research from Vertex.

Here’s what changed, and how you can make sure you stay in compliance.

As expected, most of the changes, 512, were at the city level. Of those, 304 and were rate hikes and another 178 were newly imposed taxes. (The rest were decreases in the tax rate.) Counties were responsible for 146 rate changes, 19 of which were newly imposed taxes.

Just because the bulk of the rate changes affects only a small local area that doesn’t mean you won’t have quite a few rate changes to track. After all, the changes are coming at a rate of about three per workday. Some of them are going to take effect in areas you do business in.

And because the majority of the changes are increases or new taxes, an error on your part means you’ll likely have to pay additional penalties and interest.

Taking the time now to fine-tune your internal controls can help you avoid the majority of sales tax errors other companies make.

For starters, make sure you know where you need to watch for more changes. A standard sales tax matrix, listing all the cities and counties where you do business is a crucial start.

Better yet, tie that data into your master vendor file so that if you catch wind of a rate change in a particular county, you can flag all your vendors to whom the new rate applies. Then, when they send invoices, you can tell in a snap if they’ve applied the rates correctly to your transaction.

But in Indiana, a company got caught up in a loophole — and ended up having to pay taxes on the equipment.

The problem: The company, an auto exhaust systems manufacturer, purchased steel-toe boots for its line workers and claimed them as an exempt item. Might have worked, but the company actually sold them to the workers at a reduced cost, instead of just supplying them for free.

That turned the boots into a benefit — and in the DOR’s eyes, a taxable use.

Now the company will have to pay taxes and on the entire cost of the boots.

Thought your company would be safe as long as it paid all its tax obligations on time? Think again. Turns out, if you’re mandated to use electronic payments for taxes and you don’t, the feds can – and will – come down hard.
Fallu Productions, a film company, paid its federal employment taxes in full and on time for six straight quarters in 2001 and 2002. But it didn’t use the mandated Electronic Federal Tax Payment System (EFTPS).
Eventually, IRS imposed failure-to-deposit penalties on the company – claiming a “deficiency in the form of payment.” The company fought the suit, but the courts ruled against it.
Even if e-payments aren’t yet mandated for your company, it’s a good idea to get familar with the processes.
Each year more state and federal tax payments – ranging from employment taxes, sales and use taxes, etc. – are required to be sent in electronically. It’s only a matter of time until you’ll be affected.

Have you been mandated to use EFTPS or a similar system? Let us know what you like — or what you don’t — in the comments.