The Pennsylvania Department of Revenue has recently established a sales/use tax desk review practice within the Pass-Through Business Office. It is being created to help economically uncover sales and use tax under-reporters and non-filers in Pennsylvania.
New Desk Review Practice
Under the new desk review practice, the Pass-Through Business Office will “review business tax filings to explore instances where sales tax is due on taxable purchases …but may not have been paid.” This often occurs when businesses purchase goods and equipment online, from a catalog, or in another state.
The sales and use tax desk review practice may be conducted on its own or collaterally with personal income tax reviews. If sales or use tax liabilities are uncovered during the desk review, liabilities will be imposed.
These reviews will not necessarily be performed in connection with any assigned field audit so there is no guarantee that the Department would be precluded from also performing a field audit, for example, in situations where they believe there may be a significant under-reporting of taxes. However, if taxpayers fail to respond to information requests or other correspondence in connection with a desk review, it is almost a certainty that a field audit and/or jeopardy assessments will be issued.
What to Do Next
In anticipation of this new desk review practice, practitioners are encouraged to discuss sales/use tax obligations and liabilities with taxpayers engaged in the sale of taxable goods or services in Pennsylvania.
The taxability of products and services as well as applicable tax exemptions, estimated payment rules and filing requirements are all constantly changing - particularly in Pennsylvania. As a result, the challenge of sales tax compliance for a company can be overwhelming. A self-review of sales and use tax administration, compliance, and reporting may be a way to discover where an organization stands in regards to its sales and use tax liabilities.
How to Manage Constantly-Changing Sales Tax Rules
Due to the growing complexities of keeping up with constantly evolving and changing sales and use tax rules, the challenges of compliance can seem over-whelming at times. This is further complicated by the fact that most companies operate in a multi-jurisdictional environment where there is a gross lack of consistency of the rules among these jurisdictions.
Therefore, many businesses believe that their employees can be better focused on higher value activities and they are migrating towards technology based compliance solutions. Software based automated sales and use tax solutions can supplement or support manual processes with technology that's ideally suited to handle all of the above challenges and constantly changing rules and tax rates.
To avoid the burden and challenge of desk reviews and field audits, it is strongly advised that companies meet with their tax advisors and make plans to take a closer look at their level of compliance. A self-review is similar in many respects to the types of audits conducted by state taxing agencies, but with an emphasis on identifying how to enhance their level of sales and use tax compliance.
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Guest post by Frank Tobias - a principal in RKL’s Tax Services Group, specializing in the area of multi-tax planning and compliance, with extensive experience dealing in all matters of Pennsylvania taxation.
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