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Overview

A New Jersey client of ours, sells software licenses which enable its customers to access proprietary software in a hosted environment where content such as news stories and press releases that are written or aggregated by others is distributed electronically.  The client was registered for sales & use tax in New Jersey, but filing zero-dollar returns based on an assumption that its sales were exempt because no tangible personal property was provided to customers. Based on a similar assumption, the client opted not to register for sales & use tax compliance in other states even though it was filing income and franchise tax returns outside of New Jersey. 

 

 

Challenge

Altus was engaged to provide the client with multi-phased sales & use tax consulting services.  The first phase of the engagement was to complete a multi-state nexus survey study, complete with nexus conclusions and recommendations to address identified compliance gaps.  In order to begin the analysis, we first obtained a thorough understanding of the solutions offered by the client.  This understanding was gained through interviews of appropriate company personnel; review of licensing agreements, related invoices, and revenues streams, as well as thorough discussions of said revenues with company personnel.  Our understanding was documented in writing and reviewed with the client. Once the accuracy of our understanding was confirmed by the client, we then documented the issues that would need to be researched in order to reach taxability conclusions. These issues were reviewed with and agreed upon by the client. 

 

Solution

Altus reviewed each state’s statutes, regulations and case law to form taxability conclusions for each agreed-upon issue. These taxability conclusions were documented in detail, in a written report and incorporated into a tax matrix which was attached as an exhibit to the report.

 

 

Result

The taxability matrix served as a guide for calculating the client’s historical sales and use tax liabilities. Once the tax liabilities were reviewed with the client, a decision was made to enter into voluntary disclosure agreements in those states that taxed the company’s solutions. In total eight voluntary disclosure agreements were negotiated which resulted in approximately $60,000 in tax, penalty and interest savings through limited lookback periods and waivers of penalties and interest under the agreements. The client is now taxing its solutions correctly and filing sales & use tax returns where required, with no further compliance gaps.

Services provided

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