Sales Tax Problems Cause SEC Fine!
Posted by accountingweb on 1786
The Securities and Exchange Commission (SEC) recently ruled in an administrative proceeding  that a corporation did not maintain appropriate internal controls and books and records relating to its sales tax liabilities. Summary The SEC ruled that the corporation failed to consistently comply with tax laws that required the company to collect sales taxes from its customers and to remit them to the taxing jurisdictions. According to the ruling, the reason for these failures is that the corporation did not have accounting software capable of calculating the amounts of sales taxes owed. The sales tax laws mandated that if the corporation failed to collect and remit the taxes as required, and if the corporation's customers did not otherwise pay the taxes, the corporation became liable for the outstanding sales taxes, plus potential interest and penalties. In the ruling, the corporation's failures to consistently collect and remit the required taxes ultimately required it to pay substantially all of the uncollected taxes ($3.9 million) itself. To add insult to injury, not only did the corporation have unpaid sales tax liabilities to deal with, but as a result of the SEC's administrative proceeding, the SEC imposed a penalty of $200,000. What did the Corporation Do Wrong?
- Failed to collect sales tax from its customers and remit sales tax to the taxing jurisdictions for several years.
- Corporation's accounting software was inadequate to track sales tax rates and taxability of the corporation's goods and services.
- Corporation's software failed to source sales to the correct location or jurisdiction.
- Corporation's software did not track which customers had "direct pay permits" and other exemptions.
- Corporation's financial statement reserve for its sales tax liability was understated, and wasn't allocated to specific states.
- Corporation's records were incomplete and required manual reconstruction of sales data to calculate taxes owed.