Expert: Don Sadler - 9/21/2006

Question
Don:  i am a small business dog grooming service i am being audited for sales tax/ thay are calling it a new law users tax /thay are going back to 2000 to 2006 and want me to pay tax on my supplys , i do have a accountant and i was wondering my accountant is saying that this is a new law if so i feel i should only start paying this for 2006 ( thay are assessing me for 8,000 which is penltys and interest. also i am appealing this, have you heard of this tax and should my accountant have knew about this  

Answer
Karen,

First, my apologies for being so long in responding to your question.  I have been gone and only today realized this question was pending.

The tax laws vary from state to state and I do not know which state your business is in so cannot comment on the validity of the law.  However, the law does not sound unreasonable.  Here’s why… generally speaking, most products sold are subject to being taxed.  If you have a business and you buy products wholesale that you later resell to your customers. You would not pay tax when you buy them wholesale but you would collect sales tax when you sell the products to your customers and you would submit that sales tax to the state.  If you are consuming the products in your business then the benefits of the products (or even, small pieces of the products) are being packaged into whatever service you are selling.  Hence, you are subject to a use tax since the products were not subject to sales tax when you bought them at wholesale and you did not collect sales tax on the product pieces (a capful of dog shampoo, for example) when you sold the service to your customers.  I cannot imagine that they would assess use tax for the years in which there was no such law… I suggest you speak with a tax attorney for guidance on that - you can usually get a consult appointment fairly inexpensively just to see if it is worth fighting (lawyer might cost more than paying the taxes but for $150 or so you should get some good legal advice.

You last question is especially important - should your accountant have known about this? The answer is absolutely yes!  Your accountant is supposed to be current in tax laws and specialize in accounting matters just as you specialize in dog grooming.  You rely on the accountant for business advice that you use in your business.  I would expect that you would be able to recover damages from the accountant for failing to tell you about the laws or advise you correctly.

You could also report the accountant to your state board of accountancy and have the accountant’s license revoked for the gross negligence involved.

Here is a Google search for “state board of accountancy” you can simply add a space after the last “ and enter your state in order to obtain your state board of accountancy contact information.

http://www.google.com/search?num=100&hl=en&as_qdr=all&sa=X&oi=spell&resnum=0&ct=...

Also, here is a question I previously answered regarding a sales tax audit.

http://experts.about.com/q/Auditing-1810/Texas-sales-Tax-Audit.htm

I hope this is of some help to you.