MARYLAND SALES AND USE TAX AUDIT ATTORNEY
Maryland Sales Tax
Maryland Sales Tax is collected by sellers and certain businesses who provided certain services that have been identified by the State of Maryland as taxable for sales tax. While the sales tax is actually due from the person who is purchasing the taxable item or service, sale tax is collected by the seller who is also responsible for the taxes’ transmissions to the Comptroller of Maryland. In Maryland, the seller is tasked with collecting the tax on a daily basis and is required to file a monthly sales tax return with Comptroller of Maryland. When each month’s sales tax return is filed by the vendor, the amount due is also to be paid. The tax liability is based upon the amount of sales in a given month of taxable items and taxable services. Longman & Van Grack’s Maryland sales tax attorneys can review a business’s records and taxes to assist in the payment of Maryland Sales Tax.
Maryland Use Tax
Maryland Use Taxes are paid by the purchaser of products that are purchased from another state when a Maryland sales tax is not paid. For example, if a Maryland company were to purchase taxable products from an out of state supplier, then the Maryland business is required to a pay a sales tax on those items to the Comptroller of Maryland. This tax requirement occurs because when an out of state business sells an item that is not used in the state where the seller is located, the business is not required to collect a sales tax when the item is shipped out of the state. While business could save thousands of dollars by ordering items from out of state suppliers, the states would lose thousands of dollars on those sales. Therefore, the states (including Maryland) have a use tax which requires a tax to be paid, the same percentage as the state’s sales tax, to the state on the out of state purchases. Longman & Van Grack’s Maryland use tax attorneys can review a business’s records and taxes to assist in the payment of Maryland Use Tax.
Maryland Sales and Use Tax Audits
Each Longman & Van Grack tax attorney has experience in Maryland Comptroller audits, including sales and use tax audits. When the Comptroller of Maryland completes a Maryland Sales and Use Tax Audit, the audit usually covers a three-year period. Thus, a business is usually audited by the Comptroller after being in business for approximately three years. Despite this three-year time period, the Comptroller does not generally examine every single sale over that time period. Instead the Comptroller performs the audit for a sample period (generally three to four months). If errors exist during the sample period, the Comptroller of Maryland will then apply that error factor to the entire audit period. This calculated figure will then be used to determine the exact additional tax is due.
Maryland Sales Tax Audits
During the sales-tax portion of these audits the Comptroller of Maryland will usually request several types of records from the taxpayer. For example, the Comptroller will most likely request bank statements for the period at issue, copies of all invoices and sales receipts, copies of all credit card receipts, and copies of all other documents related to the income and sales of the business. The Comptroller of Maryland will additionally review all the income figures for each month during the sample period. The ending gross-sales figure will then be compared to the amount of tax which was reported on the sales tax return that was filed by the tax payer. If there exists a discrepancy between the amount filed and the amount determined based upon the audit, it becomes the responsibility of the taxpayer to demonstrate the reasons why the amount not reported is exempt and not taxable.
Often certain sales may be exempt from sales tax. Longman & Van Grack’s tax attorneys are familiar with all of these exemptions. These exemptions can occur when the buyer is a tax-exempt organization. If the sale is made to an entity that is exempt from sales tax, the exempt entity must present the seller with a tax exemption certificate. It is imperative for the seller to ensure that it has properly identified the buyer if they are tax exempt and to make a copy of the tax-exempt certificate and keep it with all relevant invoices. Additionally, certain items are exempt from sales tax. It is imperative that if the seller is selling these types of tax-exempt items that the seller properly identify what those items are to ensure that they are not collecting a tax when it is not necessary and even more important, that they are taxing all items that need to be taxed. There are also times when certain services that are provided are taxable services. It is important that those business providing services ensure that prior to providing the services that they are not taxable. It can cause a significant financial burden upon a business that does not collect a sales tax from the purchaser, as the seller is still liable for the tax, even when not collected.
Maryland Use Tax Audits
The use tax portion of the audit, the Comptroller of Maryland will usually request copies of all purchase invoices. They will review the purchase invoices to ensure that Maryland use tax was paid on all items that are purchased and shipped into the state. It is imperative that taxpayers realize when these taxes can be do, because they can easily be forgotten and accidentally overlooked. The purchasers should ensure that they are paying the use tax to the state of Maryland and notify the seller, from whom they are purchasing the item, that no sales tax should charged from the state where the seller is located.
If errors are determined, those use tax error factors are applied to a three-year period from the sample period. It application to the entire period is important when reviewing (1) the error factor that the Comptroller used, (2) how many errors occurred in the sample period, and (3) the size of the sales for that period. If there are an abnormal amount of sales during that period or certain large sales that occurred during that period taxpayers can request to appeal the decision or to have a second sample period used to help offset the size of the error factor. All of this analysis is extremely important to ensure that the taxpayer is able to keep its use tax liability as low as possible.
A Maryland sales and use tax audit can be expensive for the taxpayer, especially if there are errors in the calculations. Longman & Van Grack’s tax attorneys are familiar with the Maryland sales and use tax audit process. These tax audits are not only costly to the business, but the audits can also be costly to the owner and person responsible for the sales and use tax of the business. It is important to realize in the context of these audits that the owner of the business can be held personally liable for these taxes. Ensuring you have an experienced attorneys with you during the audit because the Comptroller of Maryland will do everything possible to collect as much taxes as possible from the taxpayer.
The Tax Attorneys at Longman & Van Grack can make sure you or your business does not pay more local, state or federal taxes, including Maryland sales and use taxes, than its fair share. Additionally, Longman & Van Grack’s audit tax attorneys can address any type of audit before the Comptroller of Maryland. You can meet one our Maryland tax attorneys at our tax offices are in Bethesda and Rockville, Maryland. Call our attorneys at (301) 291-5027 today.