Sales Tax Horror Stories
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
Mike Fleming and Ellie Moffat are getting into the Halloween spirit by discussing some sales tax horror stories.
Here’s a glimpse of what you’ll learn:
Horror Story #1: Small Sellers Program & Being Registered in a State not Required to be Registered In.
Horror Story #2: Miscommunication from Sales Tax Provider
Horror Story #3: Problems with the Streamlined Sales Tax Program
Connect with Michael
Episode Transcript - Audio Version
[00:00:00] Welcome to Sales Tax and More, your go to resource for all things state tax related. Now, here is your host, Michael Fleming.
Mike Fleming: Hey everyone, Mike Fleming here, founder of Sales Tax and More. And today's co host of the Sales Tax and More Podcast, where we talk about everybody's favorite topic, which is of course, sales tax. And today we're going to go with a Halloween tradition. Every year this time we come out with some of the real life horror stories.
And I'll tell you this first one in the very least it scared me. I don't care what time of year it was, it would be scaring me. But, before we get into it, let's, introduce you to my co host Ellie Moffat.
Ellie Moffat: Hey [00:01:00] everyone. Great to be here. This is always a, this is always a really good podcast that we put out here.
And it's very interesting and it is actually quite scary. I agree with you, Mike. That first story is a doozy. And before we get started on that, I'm just going to do a quick introduction for Sales Tax and More. We are a full service consulting and solutions firm. We have a really great team here of experienced tax professionals who are very dedicated to fulfilling your state tax and related needs.
So we do a lot of sales tax returns, sales tax registrations, consultations, research, audit defense exemption certificate management and like our name states more. So if you have questions about our services, please reach out. We'd love to hear from you. We'd love to work with you. And if you enjoy today's podcast, please like and subscribe and follow along.
We appreciate your participation. So Mike, why don't we, jump right into story one here?
Mike Fleming: Alrighty. We had a client [00:02:00] come to us. And, they were in a panic. They had been working with Avalara. They were on Avalara's small seller program and why they were registered in Florida. I don't know what they sold in Florida was not taxable.
Avalara was filing $0 returns for them. But, they probably shouldn't have been registered, but they were. And then, Avalara got rid of their small seller program. And, our client, our current client, he wasn't our client then, should have been paying more attention. But they were filing $0 returns.
They were never asking him for money. So out of sight, out of mind. He didn't do anything when Avalara stopped filing. And didn't respond to the states, because Florida is usually good at reaching out. So there is some culpability on his part here. What happened is the state of Florida doesn't get a bunch of returns.
And remember. Avalara was filing $0 returns. So [00:03:00] the state of Florida doesn't get these returns and they say, okay, no one's sending returns. Returns should be filed. We're going to estimate. And whenever a state estimates, they usually come up with a number that's higher than the real figure. I say that all the time.
In this instance, I just proves that point. I don't know how in the world they came up with this number, but they estimated that he owed $12, 000 in back tax. Now, what are they basing that estimate on? He's got a history of filing zero dollar returns, but the state of Florida, in their infinite wisdom, said he owed $12, 000.
And not only did they say he owed, that money, but that he, that they went out to his bank account and took the money out of his bank account. He called us in a panic, $12, 000 out the window. And, he obviously didn't owe this. They froze his bank account in effect, pull that money out.
He didn't have [00:04:00] access to it. So we we get involved at this point. We call the state and say, Hey, what he's selling is not taxable. And we now we've got to wait for the refund and everything. We get this worked out, but here's, insult to injury. He's still owed about $2, 500 because there's a fee for not filing a return.
And if you have zero taxable sales, you're still supposed to be filing a return. So he had enough returns that weren't filed. That he had to pay $50 for each one of them, which added up to $2,500. So to me, this just illustrates a number of things. Number one, I don't like the states having my banking information.
That's one of the services we offer. We're doing your sales tax returns. You use one of our bank accounts. You send us the money we pay from our bank account that is set up. We don't co mingle the money it's set up specifically for you. If the state tries to pull money out of it. They're not getting anything because it's empty [00:05:00] until you send your tax money over.
So anyway, I digress. But can you imagine? A state number one, having the audacity to come up with a $12, 000 assessment when you've been filing $0 returns or estimated assessment and number two, actually going out and taking that money out of your bank account. That is scary as all get out.
That just blows my mind. And now he's got to wait. To get the refund of the $10, 000 and he's not even getting all the money back because of this $2, 500 for the fee for not filing returns. The things we takeaways from this is you can't just stop filing in a state. If you don't believe you have a responsibility to file, you have to deregistration is a formal process in every state.
So if he had deregistered, none of this would have happened. If there was better communication between Avalara and this client this would have never [00:06:00] happened. But it did happen and it's just. It's scary at what the states can do and how sometimes these states don't use any common sense whatsoever.
This one really is chilling to me. How in the world in good faith, can you go into someone's account and take $12, 000 when they've never filed any taxes, they're filing zero dollar returns all of these years. But anyway, is that a little bit scary to you, Ellie?
Ellie Moffat: Yes, it is. And it's unfortunately not the first time we've seen issues pop up with a software company.
People know they've listened to our past horror story podcasts. It's one of a few issues that can come up working with some of the software companies up there. So yes, it does scare me.
Mike Fleming: Yeah. And a lot of times it's purely. The software company's fault. And, their customer, our client doesn't have any culpability.
It's just an error on their part. This [00:07:00] time this this new client of ours he could have mitigated or prevented some of this. But, I just, I'm amazed at what the states can sometimes do. So if you think that the state doesn't have the ability to hurt you.
This should be a word of warning to that.
Ellie Moffat: Yeah. And also, oh, I was just gonna say in a little bit of callback too of, when it's really tempting to just hand over a issue like sales tax to another company because it's such a headache. It's so hard to understand. So many issues pop up, but you have to understand where your responsibility lies when you're working with someone.
And you have to have a base understanding. Even though it's hard and I, I think personally I could see myself getting in this situation. This guy's shoes too. Just it's complicated. There's a lot going on. If you're a business owner, this is one of many problems you're dealing with.
Mike Fleming: Yeah, especially when the salesperson is saying, Hey, just sign up with us, you don't have to worry about anything ever again, we'll take care of [00:08:00] everything.
If that's the sales pitch and you believe that sales pitch, which we've talked about enough times.
Ellie Moffat: Why would you in some cases, right? Yeah, it's really
Mike Fleming: If you're listening to us, I wouldn't I wouldn't believe it, but if you don't have the pleasure of listening to us.
Ellie Moffat: Yeah, it's just a good reminder.
If it's, if it sounds too good to be true do a lot of research and then do a little bit more research and know what you're getting yourself into.
Mike Fleming: Yeah. Know what you're getting yourself into or work with someone who's going to communicate with you and have a more hands on approach. We're not the only company out there that takes a more hands on approach, but I may be a little bit biased, but I believe that we have a better hands on approach than most of the companies out there.
Ellie Moffat: Yeah, you know what? I'm not biased at all, right? And I think we're fantastic.
Mike Fleming: I'm gonna, I'm gonna revise my statement. We are better than all of the other companies out there when it comes to a hands on approach.
Ellie Moffat: Absolutely. There's no bias happening at all right now, whatsoever. [00:09:00] Absolutely. All right, Mike, are you, do you have more to say about story one or are you ready for story two?
Mike Fleming: No, I all joking aside though you really need to pay attention to this no matter who you're doing business with. You just can't set it and forget it. You, you've got to at least have this in the back of your mind.
That you need to be paying attention to it.
Ellie Moffat: Yes. All right, Mike, let's do, let's jump into story two. What you got?
Mike Fleming: All right, today's pick on Avalara day. So I got another story with Avalara and this client was not happy with the communication they were getting from Avalara. So they decided to to come with us.
And when we're flipping them over, when we're converting them from the SST accounts to the normal tax accounts, because there's no visibility into the SST accounts at all. We discovered that [00:10:00] somehow. And this is, we talked about the client having some culpability. This time he didn't have any culpability.
We we discovered that Avalara somehow they managed to file three different tax types in the state of Michigan in a six month period. So I don't know how you do that. But anyway we're flipping them over to us. And now all of a sudden the state is we want all of these returns.
You've been filing in three different accounts. Six months, we want returns for the last six months period. Three companies, three accounts, that's 18 returns. And we got a nasty letter saying that thousands of dollars were due. And all we had to do is go back and amend the other returns to show that, Hey, there was just sales tax.
These other returns got to be zeroed and close those accounts out. But I don't know how that happens. That's a little bit scary to me. How in the world [00:11:00] can you file three different types of taxes? And that had nothing to do with the client. Somehow that was a lack of internal controls or something going on over there.
But we were able to get it all straightened out. Of course, our client, when he gets that letter from the state saying he owes, thousands of dollars, he starts to panic. Those letters are a little bit nasty. He panics a little bit. He's scared. He's got the horror happening at the Halloween time.
But it worked out well. We got it corrected. And he's going to be smooth sailing with us on a going forward basis.
Ellie Moffat: All right. And should we jump right into story three then? Or let's go ahead.
Mike Fleming: Story three is more of a horror story for us. And it really reiterates some of the problems with the streamlined sales tax program. So this person again, wasn't happy with the communication. That's not a horror story.
[00:12:00] That's just run of the mill. So they decided that they were moving to us. Because we communicate better than these software companies, and unfortunately, we've said this multiple times, you have no visibility into the streamlined sales tax accounts. We know that the returns were filed, but we can't see that they've been filed in any of the online accounts.
And when we open up the new accounts, the state's what about all these months? The state couldn't even see that they had been filed. So we had to go back and jump through a lot of hoops. And by the time this one was done, our operations team they were ready to clobber the salesperson because the salesperson got them into this.
But it just goes to show you how hard it is. Have any visibility into these streamline accounts and to get out of the streamline program had, as I've mentioned in a number of webinars and podcasts, getting out of the streamline sales tax program, our [00:13:00] operations department is described as the same as being jumped out of a gang.
It's that tough. And this took hours and hours of work for something that really should not have been an issue. But the states want to know what's going on, and a lot of times the states don't even know what's happening with the streamlined sales tax program. You would think they would know, but when you're talking to some of the people up there, it's what's the streamlined sales tax program?
And there's not a whole lot of education. It's better than it used to be at the states. But it's still not where it needs to be. And this visibility issue is absolutely ridiculous in this day and age. How can you not have visibility, on an online basis? That's a horror story, but it's it's a little bit of a different horror story.
It's just our our operations team was horrified at all this extra work that they had to do to get something that should have been very simple. [00:14:00] And that's all I got for you today, Ellie. These are the three newest horror stories that I have.
Ellie Moffat: And you know what? I think we can leave it at that for everyone.
Let them watch zombies and goblins from here on out for their spooks. They don't need it. They don't need any more real. Real horror stories. Thank you for so much for listening, everyone. If you have any sales tax needs, we offer many solutions and services and you can reach out to me directly.
If you have questions about those services, my email is emoffat at sales tax and more. com that's E M O F F A T at sales tax and more. com. Our website is sales tax and more. com. And we also have a, an entire series of free webinars. We have them pre recorded and we have a research source. That's a paid, wow.
A paid source. Hopefully everyone understands what I'm trying to say here and thank you so much, everyone for joining us.
Mike Fleming: Thank you everyone. And we hope to see you on the next episode of the Sales [00:15:00] Tax and More Podcast. Bye bye.