Ok folks, Here is my FIRST HAND EXPERIANCE with a foreign (I.E. non-resident State audit of my business) taxing authority.
On or about 2 JULY 2018 I received a certified letter from the State of _____ , well we'll just leave that blank as I have not received my final letter of disposition from the non-resident states department of revenue.
The foreign Department of Revenue, Sales and Use Tax Division auditor wanted to see all of my invoices for work performed in their state from 1 JUNE 2015 thru 31 MAY 2018.
I provided them with invoices showing them work totaling less than $26K for the three year time period.
About two weeks after supplying them the requested information I received another certified letter disputing that my company only did $26K in sales in their state over a three year period. The auditor now wants to see ALL invoices, purchase orders, accounts payable and receivable ledgers for the above mentioned time period. We were given ten working days from the date of the letter to produce the additional records. Bear in mind that this second letter is dated 13 AUGUST 2018 and post marked 16 AUGUST 2018. This second letter was not delivered until 20 AUGUST 2018. leaving us just four days to compile and deliver the requested additional material.
My attorney fired off a FedEx next day early AM delivery letter stating our displeasure with the Dept of Revenue only allowing us four days to produce materials that would under IDEAL conditions take a minimum of thirty days to produce. We received a 30 day extension.
After not finding any proof of additional work done in the State of Confusion/Disbelief for the past three years, they changed the rules of the game mid-stream. The auditor now wants to see all invoices, P.O's, accounts receivable and payable ledgers and now to include bank statements from 1 JUNE 2012 to 31 MAY 2018. a SIX year period. This additional three years produced an additional $16K in sales in the foreign state.
A few of you here know me personally and some of you know my line of business. For those that don't know me lets just say that I am in light construction, residential and commercial. According to The State of Tennessee I am a home improvement/glazing contractor/materials converter. Everything I sell is installed as a retrofit to your existing real property (Your house or building). My items are a permanently attached item that can not be removed and reused, similar to the paint on your walls. If removed they have zero resale value and zero reuse value.
According to the Tennessee Dept of Revenue my saleable items are permanently attached to real property and therefor sales tax exempt. I must pay a USE TAX when I import my for sale items into the State of Tennessee.
Using the paint example from above lets say you live in Tennessee. You contract with a Tennessee based painting contractor to paint you house. He is to supply material and labor to complete the job. He goes to his supplier and purchases $1000 worth of paint. He must pay either sales tax (If the paint is purchased in Tennessee) or Use Tax (If the paint is purchased outside of Tennessee and imported across state lines by common carrier). He can not charge you sales tax on the paint as the paint is being applied to your real property, i.e. your home. He can not charge you sales tax on the labor as the labor to apply the paint to your real property is exempt from sales tax according to the tax codes of the State of Tennessee.
Fast forward to last week. I received, through my attorney and my CPA notification that the State of Confusion/Disbelief is dropping the investigation into my business for failure to report and pay sales or use tax to their Dept of Revenue and failure to file a corporate income tax return.
When asked why they were dropping the investigation, we were informed that my company had not generated enough income in the foreign state over the audit period to be required to file a State of Confusion/Disbelief business income tax return. When asked what that magical number is we were informed 10% of annual gross receipts would have to have been produced in their state before being required to file a corporate income tax return. That translates to us having to exceed on average $120K in annual sales in their state before having to file a tax return.
And now for the best part, in the State of Confusion/Disbelief, my items are tax exempt when purchased attached to real property. No sales tax is able to be collected on my items when sold installed in their state.
Now I'm out over $10K in attorney and associated professionals fees.
Government... I deleted what was here. No sense in getting banned.
Class III
