CPA Practice Advisor

JUN 2018

Today's Technology for Tomorrow's Firm.

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30 JUNE 2018 ■ SALES TA X & COMPLIANCE Increase Your Firm's Profits: Add Sales Tax Compliance to Your Services By Andrew Johnson, CPA FOR YEARS, ACCOUNTANTS have heard that our profession is changing. With the advent of new technology, we no longer will be data entry specialists or spend excess billable hours working on tax returns; instead, we have to morph ourselves into trusted advisors and business consultants. I find two general reactions to this prediction of our evolution. First, internally, we may not feel that we're really qualified to be a "business consultant", and we may not be sure how we will find the time to become qualified. The second, and perhaps even bigger, concern is that we may not think our clients see us in that way. After all, we are tax advisors. That's where we shine and it's what our clients expect of us. The reality is that your clients already view you as their resource for all things tax related. So, why not do more with your practice to take advantage of this? There are benefits to an accounting practice by expanding services and adding efficiencies in the process. And in fact, the fastest way to increase your profits is to perform more services for your existing clients, and the best way to start is to create a state and local tax practice of your own. STATE AND LOCAL TAX IS A SPACE YOU CAN OWN In the 2018 survey by Accounting Today of the top 100 accounting firms, the third biggest of the top niche services is state and local tax (SALT), and it's been in the top two or three over the last several years of this survey. Why? The estimated revenue from tax compliance practices of the Big Four and the top 100 firms is $1.6 billion annually. This is a big revenue opportunity and it's getting bigger every day. Clients expect you to help them be on the defensive regarding tax compliance issues. State governments have become insatiable, always looking for more tax revenue. And there is benefit to them from getting those revenues from out-of-state businesses. There is very little political cost to getting revenue from someone who can't vote you out of office, so they are focused on going after your remote clients. One of the easiest entry points to adding these services to your firm is to add to or expand on your sales tax returns filing. You can add accuracy and efficiency to that process and several automated solutions are available. Your clients want more tax compliance services, and your firm can grow and be more competitive if you extend even to your existing client base. Yet when I advise firms on how to expand their business with state and local tax compliance services I encounter two myths – that clients don't really need tax compliance help and that you need to be an expert to offer any services. Let's break these two concepts down. Myth #1 – Clients Don't Need This Service Every business that sells taxable items should be collecting tax somewhere. Now, if you have a client in a non-sales tax collecting state like Oregon and all of their customers are also in Oregon, then they are off the hook. Otherwise, if your clients are in a state that has a sales tax and they sell taxable items into that state, then they should be collecting sales tax. Let me tell you a cautionary story of a client we worked with. His was a one-man operation doing swimming pool maintenance and repairs in Texas with annual revenues around $70,000. The owner was in his 60s and thinking about retirement. Then, he got hit with a state sales tax audit which uncovered the fact that for the entire 11 years he was in operation, he wasn't charging sales tax on his services, which were taxable in Texas. There is no statute of limitations if you're not filing returns. So the state went back 11 years and assessed the owner $116,000 in taxes. His small business was not able to pay. Now his life is drastically changed. Instead of retiring in a few years, he is required to make $2,500 monthly payments until he is in his 70s. This is a common mistake that could have been avoided.

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