Case Study: Animal Health & Products
BACKGROUND
ABC Company acquired several Animal Health, Petcare, and Agricultural Monitoring companies. None of the companies were currently charging sales tax on their products and services, which initially appeared to be incorrect. During the due diligence process, ABC company wanted to know the overall sales tax exposure to ensure proper sales tax was being charged if needed.
CHALLENGE
Many of the products and services provided were quite innovative and new to the market, especially Agricultural Monitoring services. State laws are outdated when it comes to the agricultural industry and exemptions have not kept pace with modern products and services. Additionally, these companies sold their products and services in packaged bundles, a mixture of software, software as a service, training, tangible personal property, etc. Various exemptions could also apply, leaving ABC Company unsure of where to begin.
SOLUTION
ABC Company hired Mo to go through their products and services, determine sales taxability for all 46 sales tax jurisdictions, create a detailed sales tax matrix, and factor in any exemptions. Mo analyzed their historical sales by revenue stream and came up with a sales tax exposure analysis. Utilizing various tax research resources and his contacts with various states and network state sales tax specialists, Mo completed the task within two months.
RESULTS
ABC Company received a fully prepped and reviewed sales tax matrix detailing taxability for the products and services of these three companies, any exemptions that may apply, and a detailed tax exposure study. Mo recommended best invoicing approaches to avoid unnecessary application of sales tax and worked with their IT department to implement them. The sales tax exposure studies allowed ABC company to put up necessary sales tax reserves in case of future audits and helped them negotiate a better price for the acquisitions.
CONCLUSION
Having a sales tax matrix prepared for products and solutions that do not have a straightforward sales tax answer is beneficial. The tax matrix serves several purposes, including getting invoicing correct, being ready for customer questions on taxability, and being able to defend any future sales tax audit. It is important to consider any tax liabilities that may transfer over to the acquiring company during the acquisition process. Hiring seasoned and experienced sales tax researching experts like Mo is essential for the success of the company.
AT A GLANCE
CHALLENGES
Outdated state laws and exemptions for innovative products and services
Products and services sold in packaged bundles with various exemptions
Uncertainty about where to begin in determining sales taxability
BENEFITS
Accurate invoicing with proper sales tax application
Being ready for customer questions on taxability
Ability to defend against future sales tax audits
TIME AND RESOURCE SAVINGS
Completed the task of determining sales taxability for all 46 sales tax jurisdictions within two months
Implemented recommended invoicing approaches with the help of their IT department
Allowed ABC Company to focus on other important aspects of the acquisition process
FINANCIAL SAVINGS
Helped ABC Company negotiate a better price for the acquisitions
Put up necessary sales tax reserves in case of future audits
Avoided unnecessary application of sales tax, saving money in the long run
EXPERTISE
Utilized various tax research resources and networked with state sales tax specialists
Analyzed historical sales by revenue stream and determined sales tax exposure
Recommended best invoicing approaches to avoid unnecessary application of sales tax
ADDITIONAL BENEFITS
Sales tax exposure studies gave ABC Company greater insight into their products and services
Prepared ABC Company for potential future acquisitions with similar sales tax challenges
Highlighted the importance of due diligence in considering tax liabilities during the acquisition process.
OUR MISSION
What sets us apart from other sales tax consulting firms is our commitment to offering top-notch services without charging exorbitant fees typical of other firms.
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We believe that every business deserves quality sales tax consulting that is accessible and affordable, and we have built our practice around this core value.
