Is your Medical practice prepared for a sales tax audit?

The recent downturn in the economy has reduced the revenue stream of many state governments.  The states have reacted by seeking additional revenue through compliance audits of businesses. We have seen an increase in the number of medical practices targeted for sales tax audits by the state of Maryland. Is your Medical practice prepared for a sales tax audit or will you be writing a large check to the government?

Typically the Maryland auditors will review accounting records looking for untaxed purchases and assess tax deficiencies for the past four years plus 13% interest.  Listed below are some of the more common types of transactions that auditors assess tax on:

  • Missing invoices – These can include credit card charges where the vendor invoice is missing or misplaced purchase invoices.
  • Internet – Purchases from out-state-vendors through the Internet are subject to use tax when delivered to Maryland.
  • No tax charged – This can happen for many reasons such as:
    • Vendor was not aware the item is taxable,
    • an out-of-state vendor with no MD nexus is not required to collect the tax,
    • it is not clear the item is taxable, and
    • a general lack of understanding of the sales tax process.

The flip side of tax deficiencies are overpayments. In Maryland many types of medical supplies are exempt from sales tax.  Unfortunately, because of the complexities of the tax law, many vendors are not aware of the details of the exemption and will incorrectly charge sales tax.  We have seen many instances where vendors will completely mix-up what should and should not be taxed. These misapplications of the sales tax law to medical purchases often lead to overpayments of tax and audit problems.

What can you do to protect your medical practice from the uncertainties created by a state sales tax audit?  We have specially- trained tax consultants who are experienced with the complexities of the sales tax law. We can help by reviewing your accounting records to look for refund opportunities and fix problems.   The benefits of a sales tax review can include reducing the amount of an audit assessment, apply for refunds of overpaid taxes, reduce the risk of being selected for audit, and better manage the tax compliance of your business.

We would be happy to discuss how we can help your business be better prepared for an audit and maybe get a tax refund.

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