Don’t let potential tax refund dollars
soak into the system without collecting your fair share. Businesses are faced with a multitude of state and local
tax issues; Pennsylvania alone has more
than 20 different types of taxes. It’s no wonder that companies lose out on refund
opportunities. Finding incidences of over-payment is time-consuming, and tax laws
are always changing.
“As other business issues become
important to an owner, or when there is
turnover within a company’s accounting
department, some of these state and
local taxes are not looked at closely,”
says Tim Dudek, a director in the Tax
Strategies Group at Kreischer Miller in
Horsham.
“Significant refund dollars may exist, but
you may lose them to expiring tax
statutes,” Dudek adds, noting that after tax
laws expire, taxpayers are precluded from
recovering refunds. “It takes a seasoned
professional who has lived and breathed
those taxes to know where opportunities
lie.”
Smart Business asked Dudek to discuss
why business owners should consult with
a specialist who can identify tax refund
opportunities.
Why do so many tax refund opportunities fall
by the wayside?
State and local tax laws throughout the
country are ever-changing and the tax
staff at any one company may not be sufficient enough to keep up. That is where
opportunities remain on the table —
until a third-party specialist uncovers
those opportunities, which turn into
cash refunds. Once a state law expires,
which is normally three years from the
time you make a tax payment, you are
precluded from going back to recover
taxes.
The government certainly isn’t looking
for these glitches during an audit. An auditor is more likely to look for tax deficiencies. So it’s no surprise that refund
opportunities are overlooked during tax
examinations.
What will it cost a business to recover over-paid taxes?
Most of this work is done on a contingency-fee basis, which is normal for this
type of specialty service. Fees depend on
the amount of the refund that is recovered,
so there is never a risk for the company. If
the specialist finds a cash refund, the fee is
based on a certain percentage of that
amount. If no refund is identified, then
there is no cost for the service.
Really, business owners have nothing to
lose. Even if their refunds are small, they
will build a stronger relationship with the
accounting firm that conducted what is
referred to as a ‘reverse audit.’
Also, these audits build trust. Business
owners can rest assured that the firm is
working on their side, particularly if specialists are interested in finding opportunities for them to save money — with no
penalty cost.
What inspires business owners to request
this service in the first place?
Companies call us for several different
reasons. They may be losing out on bids
because someone else is under-pricing
them. They may learn that they are including sales tax in those bid prices when they
should not have. Or the company may be in
the market for a large piece of equipment,
and the vendor may suggest that the owner
consult with an accounting firm to find out
whether he or she is exempt from paying
sales tax.
What happens during a ‘reverse audit’ for
overpaid taxes?
A set of policies and procedures are followed to quickly identify, in any given state,
the areas most prone to taxes being over-paid. We interview certain personnel at the
company and review their accounting procedures. It’s a turnkey process. A company
brings us in to look at taxes, and we follow
a systematic approach from the first interview to the final refund filing process.
How often do you find refund opportunities?
Almost always. Sometimes the refund may
be very large — up to $100,000. Sometimes
the refund is $20,000 or less. Most refunds
are found in the areas of sales and use tax.
But we also look at corporate net income
tax, corporate franchise tax, fuels tax, unemployment insurance tax and others.
Keep in mind, these refund opportunities
can generate financial statement income,
making a statement look healthier to an
outside investor. It’s always a good time to
take a fresh look at state and local tax liabilities to make sure you are not paying
incorrectly or overpaying.
TIM DUDEK is a director in the Tax Strategies Group at
Kreischer Miller in Horsham, Pa. Reach him at (215) 441-4600 or
[email protected].