57 3. Sales and Use Tax imposed on Sales/Purchases of Products and Services Understanding your company’s facts to most accurately determine whether a sales tax liability exists. Sales taxes are probably the biggest SALT issue facing companies nowadays. This is because the sales tax laws were drafted at a time when people still bought books and bought those books at a store like Steimatzky. Now companies, especially technology companies, are selling all kinds of products and services online like SaaS/PaaS/IaaS -- and fewer purchases are being made in person at a brick and mortar store. The issue companies are facing is determining whether their products are taxable and having to do so in every state the company has nexus. It gets even more complicated because the definitions are not the same in each state. While two states may tax SaaS, the definition of SaaS may not be the same in both states. There is also an issue because companies often sell more than one product or service to a customer and not every product or service sold is taxable, but only one price is charged for the bundle of products and services. When this happens, companies have to determine if they have to charge tax on the entire amount of the sale. 4. Correcting Historical Tax Liabilities Whoops! How can we fix that mistake!? If a company has not gotten its sales tax filing and collection obligations in order, sales tax will haunt the company if/when it is raising its next round, it is a target for an acquisition, is planning to go public, or even if it is just audited. This is because sales tax becomes the company’s liability if it does not collect the tax from its customers. This point cannot be overstated. Sales tax is something that should be passed on to a customer. If it is not, it is a liability that continues to accrue, and which cannot be extinguished without payment. Since determining if there’s sales tax exposure is now part of the due diligence process for most U.S. investors and bankers, many companies that did not come to us when they first started doing business will come to us in anticipation of a funding round or an exit. We assist them with determining if there is exposure, how much the exposure is and how to best minimize the exposure.
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