Refund Review series: Part 2
Did you know that your business could be overpaying a large amount of tax? In fact, your business could potentially be overpaying hundreds of thousands of dollars over time. All of this could be windfall money for your business. However, there is a cut-off time –a statute of limitations– that may limit access to your refund. So it is important to act fast in order to get your money back and profit from your refund.
Knowing the Statute of Limitations
A statute of limitations varies by state. By definition, it is a law that sets forth the maximum time after an event that legal proceedings based on that event may be initiated.
When we apply this in a sales and use tax context, it means that there are time limits established by state laws. They govern how much time a taxpayer has to file a refund claim after paying tax erroneously and how long taxing jurisdictions have to assess your tax.
Essentially, it is possible to find up to ten years of overpayment of tax; you can get that money back from that state. However, as mentioned above, there’s a cutoff for every state. Every month and year that goes by that you’ve overpaid tax is money that falls off the table and goes to the state. In turn, this becomes an urgent matter and is critical that you look into a refund review or reverse audit sooner rather than later. In these times of inflation, now is a good time to see if there are windfall dollars that will come in as open income.
When Should I Do a Refund Review?
There’s a popular Chinese proverb that says: “The best time to plant a tree was 20 years ago. The second best time is now.” The same goes for sales tax and looking for overpayments.
If you’re concerned about the accuracy of your tax process, making a lot of purchases, paying a lot of tax, or under a sales tax audit, it’s a good idea to conduct a sales tax refund review. Everyone is entitled to the refunds available—you just have to identify the opportunities. One of the best times to look for refunds is when you’re being audited. Don’t pass up the opportunity to look for overpayments during an audit process.
Generally speaking, during an audit the auditor is most likely not looking for overpayments. The auditor, if they’re any good, will find all the tax your business owes. What they don’t do as a general practice is find areas where vendors overcharged you and you’re due a refund. That’s up to you. So you can wait around for the auditor to assess your tax and then react to that, or you can proactively look for areas where you’ve overpaid the tax.
Also, what some people may not understand is that often audit fieldwork takes longer than the auditor initially estimates. When a delay happens, the auditor will request a waiver of the statute of limitations. This is because the delay causes some of the months under audit to fall out of the statute of limitations. A statute waiver agreement is just that – you agree to extend the statute of limitations on the earliest months in an audit to allow the auditor to complete the audit. This in turn also extends the time for which you can obtain refunds. This period can be kept open for liabilities and refund opportunities making it a great time to utilize a refund review.
How Do I Get Started?
If your business collects and remits state sales tax there’s a good chance you could recover overpayments or out-of-pocket expenses by taking a closer look at your compliance. For online sellers looking to improve the financial standing of their business, reverse audits provide a favorable and manageable process for doing so. So what’s stopping you?
As we always say at PeisnerJohnson, there is confidence in collaboration. Let the professionals do what they do best. Get on a “What’s Next Call” and we will help by answering any questions and guide you in getting this process started. Finding peace of mind is a phone call away.