Whether state or federal, most dealers have gone through at least one audit, and some can count the phases of the moon on how regular they seem to have become. They also become giant time sucks for executive teams and administrative staff, as you have to produce documentation and explain your business to auditors who don’ t always have a great understanding of your business, to put it politely.

Tax Audits on the Rise

Tax audits, especially state sales tax audits and the issues they raise, are increasing. States are increasingly using data analytics to flag issues for auditors, and industries with complex tax obligations, such as equipment dealers, are at a higher risk of being audited. State Departments of Revenue are more closely scrutinizing tax exemptions across the board, with agriculture equipment sales tax exemptions particularly susceptible to creating a myriad of issues for the uninitiated auditor.

Audit Kitchen Sink

No dealer has a problem paying their fair share, and genuine mistakes happen that audits reveal; nobody is perfect. It’ s another story when the state is trying to collect more than what is owed. This is not a problem data analytics creates; instead, it is typically individual auditors creating novel interpretations of statutes that often lead to large, unexpected tax liabilities. This is why people hate audits: it feels like the kitchen sink is being thrown at them.

In recent years, we have seen numerous examples of this. Auditors alleging that credit card surcharge fees are subject to sales tax, dealers being required to prove their customers are using lawn mowers“ exclusively” for agricultural purposes, sales tax liability for the

20 EQUIPMENT DEALER MAGAZINE • U. S. EDITION

Tax audits, especially state sales tax audits and the issues they raise, are increasing. States are increasingly using data analytics to flag issues for auditors, and industries with complex tax obligations, such as equipment dealers, are at a higher risk of being audited.

dealer on manufacturer provided equipment insurance, and the list goes on. In many instances, dealers are expected to police their customers and have even been held responsible for sales tax when it turns out their customers falsely claimed an ag exemption.

Association Advocacy

Most of the time, we don’ t know these are issues until dealers bring them to our attention, and often that doesn’ t happen because it doesn’ t appear the association can provide any help. The truth is, we have a very strong record of success helping dealers with audit situations. The association can speak directly with executive-level staff in state revenue departments to discuss the application of laws and regulations when dealers under an audit clearly cannot. We have resolved several issues for dealers through these types of communications.

Sometimes a discussion doesn’ t change things. That’ s when the association can step in and pursue legislation. We have successfully passed multiple pieces of legislation clarifying tax exemptions, burdens of proof, and record requirements that benefit dealers. In at least one instance, the state comptroller amended their audit to reduce a six-figure tax liability against a dealer once legislation passed.

Use the Association as a Resource

For the association to help, we need to know there is an issue. With Equipment Dealer Consulting and our advocacy team, we have more industry knowledge and expertise than anyone else, bar none. We have the experience to know when an auditor has gone off the reservation, and we can help guide you through the process to resolve it, even if that means resorting to legislation.

If you find yourself in the unenviable situation of facing an audit and, god forbid, an unreasonable auditor tallying up your tax bill, the association is there to help. EDM

ERIC WAREHAM is Senior Vice President of Government Affairs for NAEDA. He has extensive legal and policy experience in both a trade association and the private sector. Prior to joining the association, he was general counsel for an Oregon-based heavy civil construction company. He also served as the director of government relations and general counsel for an association in the wood products industry, has managed state and national political campaigns and held numerous positions in a state legislature. Wareham is a graduate of the Willamette University College of Law and Augusta University.

ERIC WAREHAM is Senior Vice President of Government Affairs for NAEDA. He has extensive legal and policy experience in both a trade association and the private sector.