In this podcast, our experts Chris Rivera and Mark L Stone had discussed What Every Business Needs to Know About Sales and Use Tax.
#BKOT 33: BUILD A KICKASS OFFSHORE TEAM
WHAT EVERY BUSINESS NEEDS TO KNOW ABOUT SALES AND USE TAX
Hosted by: Chris Rivera, Director Client relations, Entigrity Offshore Staffing
Guest: Mark L Stone, Managing Partner, Sales Tax Defence, LLC
Chris: All right good morning everybody, all across the world and this is Chris Rivera with #BKOT. We are on episode number 34. So thank you for taking your time out of your schedule this morning and joining us. You know we're always looking to provide useful resources for the accounting community through our guests and thought leaders and today we have one with 30 years of experience and from New York as well. So we have Mark Stone, Founder and Managing Partner of Sales Tax Defense LLC and what we're going to talk about today is “what every business needs to know about sales and use tax” so Mark thank you so much for taking time out of your schedule and joining us today. So tell us how you all got started?
Mark: Good morning Chris thanks for having me this morning. I am glad to be here and hopefully educate some of our people watching today what they can do to stay out of trouble with the state. I got my background almost 31 years ago. I guess it was being a New York state sales and use tax auditor, going out and asking businesses for money.
I did that for a few years and then some people say I went from the dark side of the forest over to the good side of the forest and went to work at a couple different public accounting firms, representing people that were being audited and having problems with the state, along the way got my CPA license got a master's in taxation, taught graduate school at CWU post here on long island and for the past 14 years, I have been running a practice here at Sales Tax defense. All we do is sales tax consulting, whether representing people being on audit or better than that when we get a chance coming into businesses proactively and warning them about what they should do and what they shouldn't do, that way if the government ever knocks on their door they don't get a bill they just get to give the order to some paperwork the order goes away and they get to keep all their money in their checkbook. So that's really what I want to talk to people about today is not getting in trouble.
Chris: Yeah! Especially now with the government having a lot of bills to pay, they're definitely going to be investing and making sure that they're collecting every penny and so let's talk about it from the business perspective and so when you're working with a new client starting a new business and start off with the basics, I mean sales versus use tax from my understanding it's they're the same but it's like it depends on where they are indifferent merchants and whether or not it's been paid so can you kind of detail that up.
Mark: Sure, so the state calls sales tax two different things, they call it sales tax and they call it to use tax. USP and one work with the other so the way it's supposed to work is sales tax is what gets charged to the purchaser by the seller if a transaction is subject to sales tax, you go into a restaurant they charge you sales tax on the bill, you go to the doctor's office they don't charge you sales tax because doctors don't charge sales tax in New York, so but sometimes you buy something on the internet, on amazon, on however you buy something a flea market because you paid cash, it doesn't matter how you bought it but the people don't charge you sales tax when they should have charged your sales tax or at least when you should have paid sales tax.
So you walk into a big-box retailer and you buy a T.V set they charge you a sales tax, you go on the internet and they ship it to you from somewhere out on the west coast they don't charge your sales tax well the law says that's not really fair to the big-box retailer that's located here in the state and they're at a competitive disadvantage.
So what the law says is that you the purchaser owe a use tax directly to the state government equal to whatever that sales tax should have been, but wasn't paid, so it's all supposed to balance out so that that's the basic concept between the two but how a business actually approaches it, should really be very different because there's two different obligations placed on the business. The first is if you're responsible for charging sales tax, you're that restaurant, you're that in-state retailer that sells T.V sets, you're a contractor who does repairs, you sell cars, you sell artwork, you sell clothing over $110 per article, you have an obligation to actually remit the sales tax to New York state, you don't actually have an obligation to charge the sales tax, which is kind of funny so if out of the goodness of your heart you want to pay someone else's taxes, you can go ahead and do that as long as you pay the government.
Now of course as a business you don't want to pay someone else's taxes, so the most important thing that any business can do is make sure that it's charging sales tax when it's supposed to be charging sales tax because if they don't charge it and remit it or at least if they don't remit it, the government's going to come after them going to build them the sales tax and going to build the interest and penalties on top of the sales tax. So probably the single best thing that a business can do is charge sales tax when it's supposed to charge sales tax or really make sure that they're the doctor that doesn't have to charge sales taxes, the lawyer that doesn't have to charge sales tax, they're a musician who doesn't charge sales tax and if you notice with all those three things that I just listed those are all services there's nothing tangible there they're not selling pens and pencils, they're not selling computers they're not selling fake prints of van Gogh which is what I have hanging on my wall, not a real van Gogh unfortunately.
So really make sure if you're a business that you're charging sales tax on every last dollar that you're supposed to be charging sales tax on and then of course remitting it because if you collect the tax and don't admit it you might go to jail so we don't want that situation.
Chris: So, yeah right if you're collecting the tax yeah it's not yours.
Mark: File a return and if no money is due because you didn't collect anything that month of that quarter send them a zero return so they're not looking for you. The joke that I always make that the government is like a bad ex-girlfriend you never want to hear from them, so if you can do something you send them a letter every month you know and you never hear back from them it's a great relationship to have with the government you don't want to talk to them they only send bad news I am still waiting for my birthday card after 50 years from the government they haven't sent it yet.
Chris: I had a quick question how does it work with online-only businesses though?
Mark: Same rules if an online business is located physically, you're a New York company and you only sell through the web so you're physically here in New York you need to charge collect and remit sales tax on all of your New York deliveries because sales tax is always based upon the point of delivery and then now there's some new rules since 2018 that if you ship into another state and I am going to oversimplify the rules if you're doing more than 100 000 of business into any other state so you're a New York company, you just have a website and people in new jersey are buying from you and you ship a hundred thousand dollars of goods into new jersey beginning with the hundred and one thousand dollar sales you need to start collecting new jersey sales tax and sending to new jersey it's more or less like a small business exemption under a hundred thousand dollars per state, once you exceed 100 from that point forward you have to follow the rules in another state. So that's how online works but other than that it's the same exact rules as physically being in a state.
Chris: Okay, so simple enough then always collect it. Now, what about businesses getting this set up with their accountants right? What are some best practices that the business should be doing or simply just listening to their account and going about this?
Mark: The most basic best practice that every accountant should be doing for every business is filing a sales tax attorney, you'd be surprised how many people don't file sales tax returns and the example that I like to always give is that doctor, that radiologist that you go to once every 10 years and the radiologist doesn't charge sales tax and he properly doesn't charge sales tax but there's this thing that we mentioned called use tax, that if you buy something and you aren't charged the sales tax, then you have to pay the use tax so this radiologist rents a million-dollar MRI machine from a company in the midwest.
And the company in the midwest forgets to charge New York sales tax so now this radiologist owes New York use tax directly to the state because they never paid sales. So here's why it's so important to best practice to file that sales tax return, if you don't file that sales tax return and that radiologist gets selected for audit the government's going to order him to go back six or seven years. If you file an annual zero sales and use tax return the law says the government can only go back three years, so if you follow some of the math if the guy is renting a million dollars a year of medical equipment and eight percent sales tax in the OCCI is eighty thousand dollars a year in sales tax if the government does a seven-year audit on him eight times seven is going to owe five hundred and sixty thousand dollars in use tax.
If they do a three-year order on him eight times three is 240 thousand dollars. Still an awful lot of money but if you give me the choice between paying 560,000 or 240,000. 240,000 is a better number, especially when you're going to end up doubling the number for interest and penalties then it's an even bigger difference so the single best thing you can do is file a sales tax return the other thing that I call is the basic rule if you're in a taxable business you want either the tax or a piece of paper is the best practice and when I say a piece of paper an exemption certificate, there's things like a resale certificate, an exempt organization certificate, a capital improvement certificate, different businesses have different reasons why they don't have to charge their customers sales tax so it's not the business's job to be the sales tax police and ask why your customer is not paying sales tax it's simply their job to ask the customer for the sales tax if the customer wants to give them an exemption certificate as long as it's valid it's not written out by bozo the clown you know you're allowed to take that exemption certificate.
What you don't want to do which a lot of sellers get in trouble for they get into the business of helping their customers steal and so you have a jeweler this was a very big thing for a very long time and jewelers were selling 10000 engagement rings and they were shipping empty boxes to addresses out of state saying there's no New York state sales tax on it because they shipped it out of state and people were working it walking out of the jewelry store with the ring in their pocket and the way New York state caught all of those people because thieves are always greedy they were shipping the 10000 rings in the empty boxes uninsured because why do you need to put insurance on an empty box but who in their right mind ships out of 10000 ring without insurance on it so that's how all the jewelry stores got caught and people went to jail for it so you know really the advice I want to give everybody is stealing is wrong everybody knows that when you cheat on your taxes you're stealing from the government but helping someone else steal is stupid so never help someone else deal if you're going to steal at least steal for yourself because if you're going to go to jail, go to jail for something you got to benefit out of not that someone else got a benefit out of or better than that don't steal at all.
Chris: Wow yeah! No that's insane, I mean it seems like you're a slick idea but they got caught you know in the end in the long run they always do. You know matter what type of criminal activity you're doing you know you may last for weeks years but eventually get caught and it's just not worth it and, so but that's great advice as far as the whole setting everything up now let's take a look at it from the perspective of the account and working with the businesses and so are there any ways that you recommend as far as getting their clients you know the small businesses to record these transactions better or is this part of their advisory side of the business how should they go about doing it?
Mark: Well the biggest thing now is because of the as you said the internet and remote sellers and websites and this 2018 change that now makes a lot of small businesses file in many more states and filing is of all the different things the single most important thing, filing collecting remaining like I said so but a lot of people don't really have the ability to file sales tax returns in multiple different jurisdictions.
You know you may not do your new opportunity know how to do your New Jersey return but you know if you're filing in 10 different states and that's not so crazy a business that's doing three million dollars a year could absolutely be doing more than a hundred thousand dollars of business in ten states and have a requirement to file and three million dollars is not a ginormous business by any chance there's a lot of family businesses doing three million dollars or more a year so with that you need to have the right tools to be able to file those terms so one of the things we do is we prepare sales tax returns all over the country for clients, our largest client because of state and local jurisdictions because some counties make you file separately not in New York but elsewhere in the country that's true.
We file about 140 returns for them a month is what we do which if there are only 50 states you know that math you can't do that manually so we're a certified Avalara partner. Avalaire is a big software company that we use to prepare sales tax returns because you need a tool to be able to look up an address see what the tax rate is being able to put that into the right jurisdiction and if you're doing that by hand you can either get extraordinarily expensive with the amount of time that you spend on it or there's just not enough hours in the day so really a big part of what accountants need to look at is having the right tools in their toolbox to get their job done effectively so that's a big thing that we do is try to use the right tools to help our clients.
Mark: Yeah exactly! And now that we're in this whole remote virtual environment whether you're partially or fully virtual there's a lot of options to where you have your local staff you can hire outside of your city and stay nowadays and even offshore I specifically haven't worked with offshore associates but the clients will come to me and ask about salt taxes right and get real specific in their requirements because they can't find this locally and they're just like what do I do.
And so there are other options available there and I mean what are your thoughts as far as Avalara's amazing software but utilizing remote staff offshore staff going forward?
Mark: Well, I spent some time at some bigger firms over the course of my career and I know that they've had great experiences with offshore staffing some of it is and a lot of it goes over to Asia's has been my experience for the office and they're on the flip side of the time timeline that we're on so when we're sleeping, they're awake and when we're awake they're sleeping so I have seen a lot of things you know at the end of the day you send them out overseas and you walk in in the morning and it's done.
And it's been really a great tool for a lot of accounting firms either for data entry, for tax return preparation, for bookkeeping, for getting things reconciled and a lot of the money in accounting actually is in the consulting world because the client doesn't really want to pay two-three-four hundred dollars an hour to have a staff person do bank reps and you can end up with crazy bills that way but if you get someone overseas to do it at a much more reasonable billing rate and you get a great product back in a faster turnaround time because they're working in effect overnight when you're sleeping and then you walk in the morning it's done the client sent me something at five o'clock at night and you can actually look at it at nine o'clock in the morning and call the clients up at 10 o'clock and actually have a real discussion with them and add value to that and they think you worked overnight on it and then they get a bill for a lot less than what it would request to have you work on it overnight it's a home run to really make you look like a hero so there's been some really great you know experiences with things overseas absolutely.
Chris: With you and working with your clients, so I know how you started off as an auditor and going business to business and then you started sales tax defense right and so what was the main goal here I know helping out your everyday businesses but in the long run I mean were you always virtual or fully virtual or how is your business kind of adjusted to this working in this new environment with your clients?
Mark: Well there have been two different things that we experienced. Luckily we have a lot of space in the office as far as how we're set up everybody has their own office so we're able to socially distance without it really being an issue and we find that we work much better collaboratively, so we did what was you know I will call it the normal stuff we wore masks we sanitize our hands 22 times a day everybody took their temperature when they stood up. You know everybody signed in signed out, signed in sign out so if somebody got sick we could of course contact trace knock on wood nobody got sick so we got lucky with that we're also a smaller office we're not sharing elevators or anything like that with people so it made it a little bit easier for us in that sense.
Chris: What about your clients too were they coming in or were they doing more of a remote meeting, how did that all work out.
Mark: So I will say 98 to 99 of our clients you know other than one or two people really we went over to completely remote zoom, some Microsoft Teams, some Webex, some of that kind of stuff but mostly zoom. We did have a couple of clients, kind of funny I mean in their late 70s-80s they wanted no part of you to know talking on an iPhone or anything like that they had to come in, but that was really only one or two percent of our client base.
The other thing that we work with though we do a lot of work with the government and our normal practice before covet was to meet with auditors and sit down with them and we have huge boxes of paper and go through different invoices different general ledgers with them different things with them the government is in my opinion, I will be careful with my language in my opinion not efficient at working at home that they're not set up for it they don't have the technology for it some of the government staff, not all the government staff some of the government staff is not self-motivated and you leave them home alone without supervisors stuff simply doesn't get done.
And we have stuff that we started in in February of 2020 and we're waiting to hear back from the government on it and it's more than a year later and even stuff like I had a conference, a virtual conference by telephone last week they're not even up to doing video the government yet and I needed a copy of the paperwork that they ordered. I was in front of them and it's literally a week and I haven't gotten it because the auditor doesn't have a scanner in their house but they're working remotely. So I understand absolutely the safety issues as far as you know you got to work from home I don't want anyone to get sick but if the government's going to mandate their people work from home they got to get on a scanner, they got to get them a web camera, they going to pay for their internet, you going to if you're going to tell people to work from home you going to give them the tools to work from home.
Chris: It's unbelievable!
Mark: If you look at the money they spent in the past year like how much is a printer scanner box?
Chris: 99 bucks for the basic one!
Mark: Yeah! 25 for a webcam to plug into your computer. I mean it's not okay what they did it's really not and as a taxpayer I am very disappointed with you to know again they have a right to be safe I understand that but they should have found a way for them to do their work.
Mark: It's again the right tool in your toolbox, if not you don't have a scanner you can't scan.
Chris: You said it yourself you effectively moved over into this environment and with everyone's safety top priority and business kept going on as usual right and so it's just silly how you know they're not able to keep up even though they're instituting all these different rules and practices.
Mark: We did what we had to do, we were closed for the summer of 2020 more or less you know and I spent money to get everybody monitors and computers and you know at their houses. We paid for upgraded access into the office. We ended up bringing our IT guy to set up a new VPN and you know all the stuff that you need to do. We bought this web camera on every computer now it's like a bad movie with all this stuff but it's that's what happened.
Chris: Yeah! I know what you mean and I mean I have been working remotely for four years so this didn't change anything. It just all the my outlets were taken away so I can understand in that aspect but it's a new environment for sure and with clients thinking about creative ways to go about their businesses, they want to go online web everyone's on it and so but you gotta be careful with the tax because if you just turn a blind eye to it. I mean you're going to get caught and so hearing information today from you and how to kind of organize this and get the best practices as we wind down here what are your final thoughts or anything else you value that you would like to say?
Mark: Yeah! When they talk about big brother watching and being scared. I don't want to be conspiracy theorists but big brother is watching it and when I say that the state government computers are tied into the federal government computers, they compare your state reporting to your federal reporting if this if you report to a franchise parent or you have a large corporate partner, a lot of that information ends up in the state hands and they use that to compare to your reporting there was a very big project in New York state with collision shops.
New York state mandates that all insurance companies report to the state what they pay each insurance collision shop separately. So what does New York state do it takes all the checks from geico from state farm, from all states, from farmers, from whoever, they add them all up they see that ABC collision shop got two million dollars in checks they look at the tax returns they reported one million dollars in sales to guess who's going to jail?
Chris: Yeah wow!
Mark: Black and white so big brother is really watching, so make sure you go to the right professional tax advisor who has the right tools to get you the right product and give you the right advice. It's funny I was on Facebook in a group yesterday and I saw somebody ask for a recommendation of an accountant and they asked for one they put in quotes very affordable to me which means cheap and I responded to that post and it was for regular accounting services which is not what I do.
I said just be careful because you get what you pay for and you need to find an accountant that has the right tools that uses software, that uses offshore staffing to keep their right their rates reasonable but still delivers an A-plus product to you that's really what you need because you know what when you buy garbage and two years later four years later and you say oh I saved twenty thousand dollars in accounting fees and the tax order gives you a two hundred thousand dollar bill you didn't save twenty thousand dollars in accounting fees so really be careful with that please.
Chris: Yeah! you're spot on. I myself too I sometimes I try to like get a product and like what do you call it a paper towel you go cheap with that but they end up using more paper towel and more and the next thing you know if you were just bought the premium brand for a dollar more you would not have been wasted using extra paper towels.
Mark: There's the only charm in my bathroom there are no stops I absolutely agree.
Chris: It is literally in all different aspects, it's worth it and don't mess around. So Mark thank you so much for taking time today joining us and giving us some insight here I haven't had this yet so I really appreciate this and for everyone that took time on their schedule to join us today, thank you so much. We will be back soon with more content for you guys and in the meantime, I have a good rest of your week and take care. Mark again thank you so much.
Mark: Thank you for having me, this was great. I appreciate it!
Chris: All right bye.
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