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of limitations; therefore, the auditor will go back further than three years to assess for these out-of-state purchases.


4. Contractors: Contractors are defined by statute as consumers/users that are required to pay sales tax (Okla. Admin. Code Sec. 710:65-7-13 (a)). Tere are limited exceptions where a contractor can make purchases exempt based upon the exempt status of another entity. If a business sells to a contractor without charging sales tax, proper documentation should be maintained to document that the sale was exempt. If the correct documentation is not fully obtained prior to the exempt sale, it is often difficult to gather the documentation after the fact. Accounting systems can inadvertently cause issues as well, when a customer instead of a transaction is set up as exempt. Tis can cause subsequent sales, which should be taxed, to be classified as exempt and not charged sales tax. Tese sales will be assessed in an audit.


5. Misuse of the Oklahoma resale permit: As previously stated, sales tax is generally owed unless an exempt entity is involved. For every transaction ask, “When will sales tax be paid?” Determining who the end user is will usually determine who is responsible for paying the tax. For example, if a tire is purchased by a manufacturing company to be used on a forklift used to move product around to various stages of the manufacturing facility, the cost of the tire becomes part of the end product as the manufacturing cost. If that same tire is purchased with someone who holds a resale permit to resell tires, the tax will be paid by the end user once the tire is sold. But what if the tire is purchased by a company who holds a resale permit but is not in the business of reselling tires? Te resale permit allows persons engaged in the business of reselling items to purchase the items exempt. Many business owners do not fully understand this concept and use their resale permit to purchase items that they are consuming rather than reselling. Te use of a company’s resale permit to


purchase exempt items that the company is not reselling can often be accidental as well. Consider the following scenario: Company A, an electrical supply store, purchases a printer on account from Company B,


an office supply store. Te owner of the electrical supply store assumes there will be Oklahoma sales tax charged on the transaction as he is not in the business of reselling printers and did not present his Oklahoma resale permit when he purchased the printer. Company B accountant gets the sales order and sees the tax id number is missing on the order commonly used on these types of sales to other businesses. Company B’s accountant questions if sales tax should be charged on the transaction. Rather than asking the owner that sold the printer, she phones Company A and speaks to the receptionist. “I need to know if I should charge sales tax on the purchase of a printer on this invoice. Do you have a sales tax permit?” Te receptionist sees the framed sales tax permit hanging at the front desk and responds, “Yes, we have a sales tax permit right here on the wall. Do you need the number?” Company B does not charge sales tax on the invoice. Company A does not notice the discrepancy when the invoice is received and pays the invoice. As a result, no Oklahoma sales tax was charged on a transaction that is clearly taxable.


6. Lack of focus on sales tax: If sales tax is set up correctly in a point-of-sale accounting system, the process should be somewhat smooth and easy to reconcile. While a system may be set up correctly at the start, changes need to be carefully and regularly monitored in order to ensure sales tax continues to be correctly calculated. To ensure all sales are considered for sales tax, you must periodically reconcile the sales reported to the OTC to the accounting system. Oklahoma updates sales tax rate charts every quarter, and these updated rates need to be considered in the accounting system. Employees also need to be trained in sales


tax rules. When a trusted employee retires or leaves, much of the institutional knowledge leaves with that person. Sales tax details can be overlooked. To help address these and other issues, the OTC offers workshops throughout the state. Businesses often have proper policies in place and start collecting and remitting sales tax correctly. However, as a small business grows, often, too, does the complexity of its sales tax. Are taxpayers venturing into different rules with the expansion of the taxpayer’s business? For example, adding


delivery for products should be made with consideration of the sales tax implications. If delivery charges are included in the sale of tangible personal property sold, the charges are subject to sales tax (Okla. Admin. Code Sec. 710:65-19-70(c)). Separately-stated delivery charges are not subject to sales tax (Okla. Admin. Code Sec. 710:65-19-70(b)). Adding delivery would also change the sourcing location for taxing jurisdiction.


7. Franchise tax accounting: Franchisees have to use the point-of-sale accounting systems provided by the franchise. Care needs to be taken that the specific nuances of Oklahoma sales tax are incorporated into the accounting packages. Updates to these accounting products must consider Oklahoma sales tax updates and changes.


8. Record retention policies: Many small businesses do not retain the necessary documents to support that sales tax was paid on purchases. For example, credit card purchase receipts made by the owner of a local hardware store at a national building supply store need to be maintained. While most accountants would not question the transaction as being valid when reviewing the credit card statement, an OTC auditor would ask for the receipt to prove sales tax was paid on the transaction.


According to Jim Fourcade, director


of the OTC Compliance Division, one of the division’s goals is education and communication of Oklahoma tax laws. In Oklahoma, sales tax is a trust tax. Tis means not only will the company be liable for any audit assessment, but owners and officers are liable as well. Te mission statement of the OTC is to serve the people of Oklahoma by promoting tax compliance through quality service and fair administration. Sales tax audits help ensure one business does not have an unfair advantage over another business by not charging sales tax. Te goal of every OTC tax audit is to ensure compliance with Oklahoma sales and use tax statutes. Usually, these audits result in assessments. However, complying with Oklahoma sales tax law does not have to be a daunting task. Te OTC has many resources available at www.ok.gov/tax/.


 September/October 2018 CPAFOCUS 11


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