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Welcome........
And the winner is.......
"ASK STEEVES" by Steve Dillawn You are being audited. The auditor is satisfied that everything is in order and all of your taxes have been paid except for one item involving purchases made from a single vendor. Last year you purchased parts from this vendor at a sales price of $1,000, along with $82.50 in sales taxes, for a total of $1,082.50. However, this vendor’s invoice reflects only that the total billed and paid was $1,082.50, with no mention of the amount of taxes. The auditor says you are responsible for taxes on the purchases of $1,082.50 along with penalties for failure to pay these taxes. The vendor has gone out of business. Are you responsible for the payment of these taxes and penalties? In this situation, the vendor (seller) is responsible for collecting the sales tax at the time the purchase price is paid and then paying the sales tax to the State. However, if the vendor does not collect the tax the State may collect from the purchaser. Therefore, the purchaser of the parts in the above example will be responsible for payment of the sales tax unless he can prove that he has already paid it. (If the sales tax was collected from the purchaser by the vendor but not paid to the State, the State’s only recourse in that situation is to go after the vendor). Generally, the invoice will be the best evidence that the tax was collected and paid, and had it shown the tax was collected at the time of the purchase the auditors would have been satisfied. In this case the invoice does not help and from the auditor’s point of view actually indicates that no tax was collected at the time of purchase. To avoid liability for the tax (and a possible penalty), the purchaser will have to present the auditors with “clear and convincing” evidence that the tax was paid. In most cases he could go back to the vendor and get a statement or affidavit that the tax was paid at the time of the transaction, but that is not an option when the vendor is no longer around. Other evidence (a contract or even a letter or email containing the terms of the sale, accounting entries or cancelled checks) may be sufficient to convince the auditor that you paid the taxes. However, lacking any such evidence the purchaser will probably be liable for the payment of these taxes and penalties. How to avoid being in this situation? Make sure every invoice or bill of sale segregates the sales tax from the purchase price, and indicates full payment. Make sure your vendors and contractors are aware of this requirement, and refuse payment on any invoice that fails to show that the correct amount of sales tax was collected and paid. Make sure your employees in charge of purchasing and payables are aware of this requirement. As a business owner and operator, you already pay plenty of taxes so don’t get in a situation where you have to pay some twice. "Ask Steeves" will be a regularly featured article in the newsletter, so if you have any legal questions, please direct them to Steve Dillawn. |
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