Wednesday, August 24, 2011

Surprise! Surprise! Surprise! - The State Auditor Looked at Your Website???

While this entry is more of a random musing than a highly technical analysis, it addresses a common issue faced by many taxpayers.

Many times taxpayers have a "Gomer Pyle moment" when a state tax auditor refers to a company's website to corroborate something they have been told or to support their position.  This happens most frequently with potential nexus questions and when an auditor is trying to determine exactly what activities a company may be performing in the state.  Any state tax auditor worth his or her "salt" (pun intended), is going to review a company's website to gather intelligence.  This is going to happen both in the world of on-site audits and also in the world of desk audits/nexus questionnaires.

When you answer nexus questionnaires and/or reply to IDRs, be sure to check your answers against what the company is telling the world on its website.  Company websites often tend to "over sell" because they are a marketing vehicle by design.  But if the company website says something like "we will install or service our widgets for you no matter where you live" or "our sales representatives are also available to train your employees," then you might have some explaining to do.

The mining of company websites by state tax auditors for information is nothing new and is not just limited to questions of nexus either.  Information pertaining to sourcing of sales, intercompany transactions, arm's length relationships, and many other issues can be gleaned from a simple review of a company website.

Any tax professional worth his salt should be very familiar with what a company is telling the world on their website long before a state auditor or nexus questionnaire ever arrives.  Company websites are a rich source of information for states looking for low hanging fruit (potential audits) and also for auditors who are currently working on company income tax, sales tax, and/or abandoned property audits.

It is prudent to try to avoid those Gomer Pyle moments . . .

1 comment:

  1. Great post! This can really trip people up. There was a Michigan case last year where a person in the tax department completed a nexus questionnaire with incorrect information. That led to a trial where the taxpayer had to argue its original answers to the nexus questionnaire were wrong. Talk about an expensive mistake. Here's the case name: Barr Laboratories, Inc. v. Department of Treasury (October 21, 2010).