Business taxes Featured

11:47am EDT January 25, 2005
Would you be surprised if you went to your local fast food drive-through, ordered a burger, opened the bag and found prime rib? That might be a pleasant surprise, but a surprise just the same.

Why? Because that's not what you bought. That's not what you paid for. In fact, it wasn't even on the menu.

It's the same for professional tax services. High-level strategy services may or may not be on the menu of your tax service provider, and the expertise is unlikely to be found within your internal tax department. But in either case, if you haven't specifically ordered tax consulting services, don't expect them to be "in the bag." If you ordered tax compliance services, don't expect tax consulting.

Common sense should tell buyers that you get what you order (and what you've agreed to pay for). And you're not going to get sophisticated strategy and analysis from anyone who is only being paid to transfer your company's financial information to the appropriate tax form -- whether from an international, well-known accounting firm or a bright, competent internal tax director.

Why your business is probably paying too much tax

In her annual report to Congress, released Jan. 11, National Taxpayer Advocate (NTA) Nina Olson cites the complexity of the U.S. tax code as the biggest problem facing business taxpayers and tax administrators. This problem is magnified by the multiple variations of the state tax codes, each under almost continuous change, and all of the above subject to daily re-interpretation through court decisions.

Furthermore, there isn't one tax code -- or even 50 plus one tax codes -- involved. In addition to the various income taxes, businesses are hit with more specific taxes.

* Sales and use taxes

* Real property taxes

* Personal property taxes

* Employment taxes.

And that's for every state and locality in which they do business. The result of all this is a continuously changing body of knowledge that makes brain surgery look relatively simple by comparison. And that's why your company is probably paying too much tax; you've hired a family doctor to give you a physical, when brain surgery is what you really need.

Is there a payoff to tax strategy and recovery services? For about 92 percent of companies in the $10 million to $500 million range, the answer is, "absolutely" -- even if your company is a pass-through entity. Here are three recent cases in point.

* A mid-sized Southern logistics company reduced its taxes by $1.2 million through an analysis that uncovered a purchased item that qualified for special tax treatment.

* A small distribution company in the Midwest was refunded $498,000 after a review of its state income tax returns for the preceding three-year period. (Its parent company had a staff of 20 tax accountants.)

* A mid-sized Northern pharmaceuticals company saved $17 million by recognizing that its business changed, but its legal entity structure didn't reflect those changes.

In all of the cases above, the companies assumed their accounting firm or internal tax department was handling strategy and minimization as well as compliance. These savings were uncovered only after the companies hired a tax strategist to find them.

If your company would like to ensure excellent service and world-class attention a tax strategist, bring in a specialist who they might view as competition. In many cases, an assessment by a strategist won't cost you a dime. And, in most cases, it will save your company substantial money.

In all cases, you'll sleep better knowing your company is not overpaying taxes.

Roy Tegenkamp is the tax engagement director for Xperianz, a professional services firm specializing in business cost reduction and leveraging technology for competitive advantage. Xperianz is one of the fastest growing firms in North America, with offices throughout the Midwest and Southeast. Reach Tegenkamp at (513) 576-1970, ext. 115.