One of the most anxiety-provoking experiences for any business owner, according to Clarus Partners Advisors LLC in Cleveland, is being audited by a taxing authority. Not only can the information requests and tight timelines be truly overwhelming, but when there is more than one entity knocking on the door at the same time, then the panic levels can go through the roof. This creates multiple challenges from the management standpoint as well as compliance.
“We have perfected the art of sales tax audit defense,” says Jeff Stonerock, CPA, Partner at Clarus Partners Advisors LLC (“Clarus Partners.”) “We have successfully saved our clients over $1 billion cumulatively.”
In a notable example of Clarus Partners’ work in the audit defense space, their client Legend Networking and Telecom, which provides IT services in many states, was being audited for sales and use tax purposes.
“We had hired another sales tax consultant to help us with our audit initially,” said Camille Monk, Chief Financial Officer at Legend Networking and Telecom. “The results were very lukewarm, leaving us with a six-figure liability. Our new CPA suggested we reach out to Clarus Partners. Even after following up with another service provider who ‘specialized’ in sales tax, Steve Hanebutt at Clarus Partners was able to decrease our audit by two-thirds!”
The final savings for Legend Networking and Telecom was more than $200,000.
Another client, a company in the manufacturing sector, was undergoing a sales tax audit by the State of Texas when they hired Clarus Partners to defend them. Clarus Partners worked with the firm’s customers to secure sales tax exemption certificates. In those cases, the customers – not the manufacturing firm – were responsible to pay the use tax. Clarus Partners also provided additional documentation that served as evidence of out-of-state sales that were beyond the scope of the Texas sales tax audit. In addition, Clarus Partners obtained sales tax refunds the taxpayer was unaware of that brought down both the tax assessment as well as associated interest charges. These efforts resulted in the manufacturing firm reducing their initial liability of $1.1 million to less than $100,000.
A client in the retail sector was initially assessed approximately $700,000 of sales and use tax, largely due to a lack of complete and valid exemption certificates. Once Clarus Partners was brought in, the team worked to reconcile differences in the audit schedules and to obtain the needed exemption certificates. As a result, the initial audit assessment was reduced by more than 80 percent! Additionally, now that the client clearly saw how important it is to maintain the necessary exemption certificates, Clarus Partners was able to implement SmartCert, its leading-edge exemption certificate management solution. In doing so, the client’s next audit three years later resulted in a $3,000 assessment. From $700,000 to $3,000 in three years. This clearly speaks to the expertise and solutions that Clarus Partners brought to the table.
Clarus Partners was asked by a manufacturing taxpayer to assist with a sales tax audit. The initial audit schedules demonstrated a sales tax liability of more than $2 million. The audit liability was reduced – through careful examination by Clarus Partners – to a final assessment of less than $15,000. Clarus Partners was able to gain a thorough understanding of the client’s business and in conjunction with its deep understanding of Texas sales and use tax laws as it relates to manufacturers, Clarus Partners was able to successfully apply specific manufacturing exemptions allowed by the State of Texas. Tax consultants without the level of expertise possessed by Clarus Partners would most likely have not been aware of these types of expenditure exemptions involving energy consumption and industrial waste disposal. Furthermore, not only was use of these exemptions able to reduce the audit assessment substantially, it also entitled the taxpayer to substantial refunds of overpaid sales and use taxes, roughly $600,000, all because they were selected for a sales tax audit and engaged Clarus Partners for help.
Clarus Partners also successfully defended a contracting client in a Kansas sales and use tax audit situation. Here, the amounts in question were much smaller than those in the above examples, but the client was also much smaller. Sales and use tax laws in Kansas related to contractors and real property improvements provide an exception that favors taxpayers in one of the tax imposition statutes. This was and is a long-time vendor relationship, so this result will provide benefits for years to come.
As shown in some of the examples above, sales tax audit defense starts with an integrated and robust exemption certificate management system (“ECMS”), preferably one that does not break the bank. To fulfill that need, Clarus Partners has created its own proprietary ECMS solution called SmartCert. SmartCert is gaining market share because users appreciate the significant sales and use tax savings they accrue after they start using the program. In addition, the software has no hidden fees, unlike its competitors in the marketplace, and offers clients the weight of Clarus Partners’ superlative expertise in indirect tax tracking, exemptions, and management, which means they can provide unparalleled customer support.
Sales and use tax audit defense is a specialty, and properly managing such an audit is an art. Those being audited need to engage the right firm with the right experience and expertise. For taxpayers needing help with their own sales tax audits, a call to Clarus Partners could result in a success story like one of these.
Parties interested in sales tax audit defense, SmartCert software, or other complex sales and use tax matters should contact Clarus Partners Advisors LLC through their website.
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Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Prestige Standard journalist was involved in the writing and production of this article.