ELFA Provides Best Practices for Managing Sales Tax During Disruption
JUL 2, 2020 - 6:32 am
The sales tax implications of lease re-writes and modifications are additional ongoing challenges facing financially distressed lessees and equipment finance companies due to the COVID-19 pandemic. Immediate concerns with lease re-writes, strategic planning for marketplace facilitator laws and audit resolution were among the topics discussed to meet these challenges during the Equipment Leasing and Finance Association’s webinar, “Best Practices for Managing Sales Tax in Turbulent Times.”
The presentation was the latest in the series of ELFA Wednesday Webinars, which have attracted nearly 3,000 participants to date. Presenters David W. Machemer, partner at Horwood Marcus & Berk; C. Eric Fader, managing director and use tax central region leader at BDO USA; and Linda O’Donohue, tax manager at Wells Fargo Equipment Finance provided guidance and best practices designed for attendees to implement immediately to help their practices. They also engaged with participants throughout the session by conducting a number of quick polls to better tailor their discussion points.
As equipment finance companies consider the range of issues pertaining to their processes and management of sales tax, below are five highlights from the webinar.
Several speakers expressed an opinion that having fewer legal entities can allow companies to do more with less. In the current pandemic environment, legal entity simplification can reduce the processes that comprise running a business and enable it to be more agile. Merging, liquidating or eliminating entities can be beneficial because there are fewer entities to manage and fewer for which to prepare and file returns. Among the downsides are the need to coordinate stakeholders including legal, HR, procurement and IT, among others, to ensure processes and the organization are mapped properly. There can also be hard costs in transferring assets from one entity to another.
Marketplace facilitator laws are changing who is the retailer required to administer sales tax. Under these laws, instead of the true seller being the administrator, it is now the facilitator who is the administrator. This can impact banks and credit card issuers, as well as equipment finance companies in certain states.
Most marketplace facilitator laws are state-specific statutory changes. At a high level, the laws can be put into two different buckets through a two-pronged test: the facilitator must advertise or list, and it actually has to collect the cash from the end customer. Approximately 22 states and the District of Columbia have taken this approach while other states are taking a broad approach in which the facilitator’s collection is not a requirement for it to be characterized as a marketplace facilitator. These laws continue to evolve.
Sales tax compliance for equipment finance companies may be reduced in some states. It is possible if an equipment lessor has multiple legal entities that are leasing assets, instead of each different legal entity filing a return in the same state, one entity could be designated as the facilitator. In this case all sales taxes required to be reported and paid can be filed on a single return as opposed to by all the disparate legal entities.
Equipment finance companies should take steps to prepare for the possibility of an audit. Although it is uncertain whether a jurisdiction will conduct an audit, it is best to be prepared. For one, be sure that positions are legally and factually sound. Develop internal controls to ensure consistent positions are taken. Memorialize internal research, including memorandums and matrices, and monitor state tax developments. Avoid compliance and refund positions that can trigger an audit. Finally, be aware of system limitations and be proactive in addressing them.
Scott Riehl, vice president of state government relations for the ELFA, reminded the webinar audience that ELFA monitors state tax legislation, including changes to tax rates, collection and administration, and the Streamlined Sales Tax Project in addition to other legislation pertaining to the equipment leasing and finance industry. For more information, click here.
A recording of the webinar and webinar slides are available here.
The June 24 webinar was part of ELFA’s “Wednesday Webinar” series created to provide critical information to equipment finance professionals on essential hot topics. The free webinars include live Q&A sessions so participants can connect with experts and colleagues on the issues they are grappling with. Click here to register for upcoming webinars or view recordings of past events.
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