Affeldt Consulting Company Sales and Use Tax Presentation Northern Lights – IAPP November 16, 2006

Sales and Use tax Issues How they affect your business  Sales Tax. Use Tax. Is there a difference?  How to accrue Use Tax?  When to submit Use Tax accrued?

Some examples of when use tax may be due:  You buy taxable items over the Internet and the seller doesn’t collect Minnesota sales tax from you at the time of purchase  You purchase raw materials for your manufacturing business, and decide to remove some items from inventory for other use (advertising display,…)  You purchase tangible items from a seller located out of Minnesota, and have the goods delivered within the state

Did you know?  If you purchase taxable items from a seller out of Minnesota and pay the sales tax rate charged by the seller at a lower rate than Minnesota’s rate, then you owe the difference between the two rates to Minnesota.  The most common assessment of sales or use tax in an audit is for use tax due on taxable items purchased from outside of Minnesota and shipped into the state

Exemption Certificates How to issue and accept in “good faith”  Single-Purchase versus Blanket Exemptions  The exemption certificate transfers the burden of proof  Seller - retain the completed exemption certificates  Purchaser – keep a copy and a list of certificates issued to suppliers, including items inclusive  Acceptance in “good faith”

Presumption of Tax; Burden of Proof MN Stat. 297A.665  The seller has the initial burden of proof that a sale is nontaxable  All sales are assumed taxable until proven otherwise  When the purchaser gives the seller a completed exemption certificate, the burden of proof is transferred from the seller to the purchaser  For a single purchase – just for that purchase. For a Blanket – for all continuing purchases of same or similar items.  The seller is required to accept the certificate in “good faith”. As long as the form is completed and signed, your responsibility ends there.

Types of Exemptions  Agricultural or Industrial Production  Direct Pay – requires prior approval and number from MNDOR  Exempt Organization – requires prior approval and number from MNDOR  Motor Carrier direct pay – requires prior approval and number from MNDOR  Multiple points of use  Percentage exemption – advertising materials, utilities use in agricultural or industrial production  Resale  Resource recovery facility – you must receive prior approval from MNDOR  Other exemptions – numerous others allowed by law

Audits – What to expect?  General Guidelines  Steps in the Process  Things to consider

General Guidelines  Statute of Limitations – Generally 3 ½ years  Informational Requests – sales and purchases  Sampling procedures  Allocate your time wisely – Don’t sweat the small stuff, unless its sampled

Steps in the Process  Notification Letter  Informational Requests – supply what’s requested. Nothing more. Nothing Less.  Preliminary Assessment  Final Assessment  Appeals Process – Don’t hesitate to appeal

Things to consider…  Auditor / Taxpayer Meetings – Request to meet with a MNDOR supervisor if needed  Minnesota Department of Revenue – Allies vs. Foes  The Auditor – Whose side are they on?  Does that seem right?  Audit Defense

Audit Defense  Your best Defense is a good Offense  Defense Wins Championships

What makes a good Offense?  Experience  Expertise  Service  Commitment  Dedication  Perseverance  Skills  Value

Experience and Expertise  Complete review of all sampled transactions/periods  Efforts to identify overpayments of taxes  Don’t be strong-armed or gullible  Dedicate the time or resources  Consider outsourcing your defense

Do I need to outsource our Offense?  What’s at stake?  What will it cost?

What’s at stake?  How big is your assessment?  Are we big enough to have potential for significant refunds?  How much time might it take?

What will it cost? If you work with Affeldt Consulting…  Initial Consultation is always free  Fees are contingent upon savings  Save time, money and effort at no risk

Affeldt Consulting Company Sales and Use Tax Consultants since 1994  Free Consultations on all new projects  Fees can always be structured Contingent upon savings

Affeldt Consulting History  I began my career in State and Local Arthur Andersen in 1991  Started Affeldt Consulting in 1994  Goals: Offer more experience, better service, better value at a better price  Multi-state Consulting in nearly every state

Our Clients…  Wide range of client’s industries  Clients Annual Revenue range from $20B to as little as $5M  Many of the large companies in Minnesota are our clients, including…10 over $1Billion Annual Revenue  References Available

Affeldt Services Offered…  Audit Defense  Reverse sales and use tax audits  Appeals  Refunds - Capital Equipment/Purchaser  Nexus Studies – Anonymous Disclosures  Federal Excise Tax Claims  Multi-state Sales and Use Tax Consulting

Are you maximizing your Refunds? Affeldt Consulting will save you money save you time and reduce expenses Guaranteed!