Even a CPAs guidance may not prevent major misstep

//August 6, 2009//

Even a CPAs guidance may not prevent major misstep

//August 6, 2009//

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Still, best policy is to have statements carefully reviewed, say expertsFor nearly six years, Trump Plaza Associates and two affiliated companies made a major gaffe, paying $5.3 million in New Jersey sales tax that it actually didn’t owe. By the time the company realized its goof and applied for a refund, it could only get back half of its overpayment, because of the state’s statute of limitations.

Using a CPA or adviser may prevent this kind of misstep, said some experts. But paying too much tax is just one challenge businesses face: given the maze of sales and use tax rules, a business can easily underpay, potentially opening it up to stiff late penalties and interest charges.

“In one case, a fellow with a landscaping service made some mistakes,” said David Morris, tax manager at Fazio, Mannuzza, Roche, Tankel, LaPilusa LLC.

“At one time, capital improvements to a lawn” — as opposed to maintenance, like mowing grass or clipping hedges — “were not considered to be taxable transactions,” he said. “The landscaper misclassified some services as capital improvements, but a state sales tax auditor later determined they weren’t, and the landscaper was assessed additional sales tax.”

The Trump controversy was decided in the state’s favor in June by the New Jersey Tax Court.

According to court documents, from January 1998 to March 2004, Trump Plaza Associates, Trump Taj Mahal Associates and Trump Marina Associates paid sales tax on power they bought from Atlantic City Electric, even though the companies had an agreement exempting the purchases from New Jersey sales tax.

Two CPA firms audited the sales tax returns, but nobody spotted the error until 2005, when Blank Rome LLP was hired by the Trump organizations to perform another tax audit. By then, the state’s four-year statute of limitations barred the Trump companies from recovering $2.6 million of the overpayment.

“When a company prepares its own sales or use tax return, there may be a greater chance of error,” said Neil Becourtney, J.H. Cohn partner. “For example, their accounting system could have a programming error and report transactions as taxable when in fact they’re not. We’ve occasionally had clients ask for a ‘reverse audit’ to look for overpayments.”

In fact, it’s “pretty easy for a company to make a mistake and either overpay or under bill sales and use tax,” said Martin Abo, a principal at the Voorhees-based CPA firm Abo and Co. LLC. “The rules for manufacturing company purchases are very complex, and the ones for making capital improvements can be all over the map. Ironically, in this slow economy, clients are looking to reduce expenses that are easily visible. They rarely ask for a sales and use tax review, even though it could save them money.”

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