Internal Communications and Tax
Hosts & Guests
Alex Korzhen, State and Local Tax Senior Manager
Meredith Smith, State and Local Tax Senior Manager
Tram Le, Leader, State and Local Tax Senior Manager
Stacey Roberts, State and Local Tax Director
Topics Discussed in this Episode:
- Navigating the internal communications ecosystem
- The differences between a VDA and VCA
- State-by-state income tax ramifications
What You Will Discover:
- [01:44] Client story: Voluntary Compliance Program
- [06:49] Sales tax by state
- [10:01] Data mining within departments
- “Recruiting, HR, IT, Finance, and Tax all have regular business activities as part of their daily function and they make decisions that affect state tax obligations. If those decisions are made without the proper steps being taken to get some sort of governmental or departmental licensure, then one department will begin to data mine another.” – Alex Korzhen [09:17]
- “As we have come out of covid, companies are still barely agnostic about where they hire and allow employees to move around, whether they know it or not. That is where issues arise. Payroll is maybe not getting notified about it until that person goes to file their return. Unfortunately, some companies are behind the eight ball on that. – Stacey Roberts [04:40]
- “The sales department does a disservice to the finance and accounting department because they either don’t get the right information to charge the right tax in the right jurisdiction, or the right tax at all. It screws up the sourcing for many things.” – Tram Le [08:00]
- “It is not just payroll we have to worry about. We have to worry about the income tax and the sales tax. Payroll can be messy but finance needs to work with us to make sure all the accounts and files are set up properly. It is a domino affect.” – Meredith Smith [08:40]
TaxOps Home – www.taxops.com
As we've come out of COVID, companies are still fairly agnostic about where they hire and are allowing employees to move around whether they know it or not. That can give risk to significant tax issues.
We had a situation come up that I thought we can, we can quickly cover on this video I had a client proactively contact me.
They were about to register with various secretaries of. Where they had employees and it it's, it was interesting because that was a proactive approach where they actually reached out to see if there was going to be any, any state tax ramifications to that decision, to, to do those authorizations, to transact business with the SOSS.
And that generally doesn't happen proactively. I was pleasantly surprised and we had a really nice discussion about. about what the ramifications to the state would be if that happened and, and also vice versa. What, what would happen if, if that didn't happen? It was nice and I thought we could talk about some horror stories.This include departments within the company not talking to each other, when hardware is being place out-of-state and finance, tax and HR are not made aware. Having a new employee or existing employee move into a new and not telling tax or finance to create tax accounts. Or this could be legal going ahead and registering with the secretary of state without letting tax know.
Registering in one state
We’ve all heard horror stories and seen the ramifications that have resulted as from those decisions. One of our clients were bidding on a contract in the state of California and unbeknownst to us, they had to register with the Secretary of State in California in order to bid on that contract. We knew that they had a previous California presence and owed tax in California from an income tax perspective. Luckily what they sold was not subject to sales tax but for income tax purposes, we knew that they'd had prior presence.
Looking at their exposure and options for remediation, we come to find out they had already registered with the Secretary of State. And as many people may know or not, you are unable to do a voluntary disclosure in the state of California if you're registered with the Secretary of State.
What California does though have, which was nice because not every state does, is a voluntary compliance program that works similarly to the voluntary disclosure, with a few benefits missing. We were able to get them into the voluntary compliance program, as opposed to the voluntary disclosure program, and get their tax situation cleaned up. They still owed some penalties because no VDA was available but we had some success there.
From a company interdepartmental perspective, a client during COVID had an employee move and the employee did not communicate the move so withholding was wrong for local purposes. We had to go back and file amendments and true up withholding to get money back from the original residency state and give it to the correct state. Stock compensation is another area that can get messed up when multiple departments are involved and no one is communicating employee moves, or just payroll or just HR is aware of the move.
Notified about it until that employee goes to file their personal income tax return and they're going, oh, my W2 has withholding from this state, but I live in this state and I'm trying to file my return in new state. And I don't, it's not matching. Right. So that's where those things are coming up. And unfortunately, some of the companies are behind the eight ball when it comes to.
And not to kind of keep kicking the, the payroll dog or a horse, whatever the expression is in this case. It can be whatever I want because I just made it up. So, but we, we had a situation where recruiting wasn't even talking to HR correctly recruiting was setting new hires up in, in the system.
And unknowingly mapping the new hires to the nearest office location which, you know, in this case happened to be Texas. So, there was, there's no personal income tax in Texas. And these employees were working remotely from home and recruiting didn't know that, that their home needed their home state needed to be set up as the work from jurisdiction.
HR didn't realize this until in, in some cases, several years down the road and, and the employees apparently didn't know or didn't communicate, or anyway, there was a, there was a several levels of failure in communication here. I. But that, that was a pretty decent mess to clean up and remap everybody.
It was, you know, obviously a very remote employee, heavy company especially during COVID times. There was a lot of cleanup to do in this case. So that's just another failure of, of communication between departments. What's something else that. I had sparked that kind of, as we were talking is we had an incident that came to, you know, sales tax and the salesperson making an adjustment such that they decided to kind of pick it up at the dock hand, deliver it to, you know, the destination for the client that they were going to visit. Which was then going to be somewhere else for use. And they were going to ship this to Texas but was picked it up from Denver from Colorado, then taken to New Mexico instead. And this issue did not come up until a refund was filed and the issue uncovered through Texas sales tax, when the matter was actually for a New Mexico project, and only technically docked in Colorado.
Accountants get picked on a lot, but you know, the repercussions of sloppy input isthat is sales kind of does whatever they want to do to get the sale in and kind of do workarounds within the system to make it happen.
That really have an impact on finance. And tax for sure. I'm definitely the client that I'm currently helping. I think that happens probably more often than not. So the sales people actually kind of do a disservice to the finance and accounting group because they either don't get the right information to, you know, properly, you know, provide the, the departments, you know, the appropriate information to even charge the right tax.
You know, in the right jurisdiction, kind of what you're saying or at all. So I think we've seen instances where salespeople don't get addresses or they get something, but it's not the right address. And so that screws up the sourcing for many things, the sales tax, the income tax. So definitely some huge issues.
Well, and just to kind of circle back on kind of the payroll, right? Like obviously, like when we've got people moving around, it's not just payroll. That we have to worry about. We have to worry about the income tax. We have to worry about the sales tax. And so the payroll can be very messy, but then we need to know, or finance needs to know, and then work with us or their provider then to make sure that all the other accounts are set up and all the filings are set up properly.
So there's just a domino effect of some of these, you know, the physical presence and also layering in then where the sales. The sales take place. So moral of the story is let's finance always needs to know. Right. So let's, let's take a quick step back then and kind of give the high level here. Intern departmental communication at the company, right?
Because recruiting HR, it finance tax all these departments have as, as their regular. Business activities, right? As they're part of their daily function make, can make decisions that affect state tax obligations. And then if those decisions are made. Without the proper steps being taken, you know, to, I mean, most obviously to, to have, get a state account, right.
A sales tax account or an income tax filing, or a secretary of state, some, some kind of, you know governmental departmental licensure. Then what happens on the government side is that they start beta mining each other. We've seen that where, you know, where, where one department will data mine, another department and, you know, Secretary of state again, being kind of an obvious one.
The department of revenue, well, maybe annually. I, I don't, I'm sure every state has a different frequency for doing this, but let's say annually, they, they pull a report that says, you know, what are the new licensures that happen this year, you know? And then they cross reference against the sales tax license.
And then they'll send you a love letter. Hey guys, we noticed that you have authority to transact business. Why are we not seeing sales tax returns from you or income tax returns? Right. Or here's a giant jeopardy assessment for $500,000 because we extrapolated the fact that you declared $20,000 of payroll for one person in our state.
And somehow that means you owe $500,000 of income tax. And those numbers are typically nonsense, but you're always, you're caught on the heel to try to defend that. And they're very, and they tend to be very big to scare
That gets your attention for a reason.
That’s one success story in a sea of horror stories. We can help turn that around. We’re here for a reason. We're here to help.
Thanks for tuning in everyone. Take care.
Sign up to receive email updates
Enter your name and email address below and I'll send you periodic updates about the podcast.