How to reclaim overpaid taxes.

• Author: Gschwendtner, Joe
• Position: Column

COLORADO AND HOME-RULE CITIES EMPLOY ENERGETIC TAX AUDIT staffs to ensure that businesses pay their fair share of sales taxes. Naturally, these auditors aggressively seek to uncover underpayments. Findings in favor of the taxpayer are generally incidental and infrequent.

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More than $4.5 billion in sales and use taxes are collected annually at state and city levels in Colorado. A mere 1 percent of over-collected taxes yields unearned revenue of $45 million. Aggregate overpayments of up to 10 percent may be possible due to fear, statutory gray areas, ignorance, sampling methods, and unbalanced procedures. Let's drill down further....

Sales tax makes up one-third of state revenue collections and an even greater proportion for home-rule cities. A sales tax is a levy on the privilege of purchasing tangible personal property and certain services and paid by the end-user (consumer). Inventory, equipment and adjunct materials are, under certain circumstances, exempt.

A seller includes the tax on buyers' invoices and remits it after a month. When a buyer is under-billed, the seller is held liable. This protocol sets the stage for incidental abuse.

At no risk, sellers ignorant of the law or their product's end use charge sales tax simply to protect their own interests. Buyers unfamiliar with revenue codes often pay the wrong tax as billed. Unearned millions reach government treasuries this way.

Complementary to sales tax is use tax. For example, if a seller is out of state and collects no sales tax, the buyer must self-assess use tax for the balance owed! Likewise with a Colorado merchant failing to charge the correct tax on a consumable item. That's right! If you think you're under-taxed, you must tax yourself!

To police the levy process, field auditors visit taxpayers to examine the accuracy of the collection/remittance cycle. This exercise (once every 36 months) may take four days or four months to complete depending on company size. After one discussion about audit findings, a deficiency notice is issued that constitutes a soft demand for payment.

A Colorado notice might read: $150,000 in underpaid taxes, $30,000 interest, $30,000 penalty interest, and $15,000 in penalties--for a whopping $225,000 due. While a discount is offered for timely payment, failure to pay in 30 days will negate it, and collection wheels will likely grind hard and unsympathetically. Liens and collection penalties can follow.

Advantage: government!

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