Knowledge Center

Tuesday, April 21, 2015

HMB's David Hughes Quoted in Law360 Article on Avoiding Sales Tax Litigation

5 Ways Retailers Can Avoid the Sales Tax Litigation Blitz

By Ama Sarfo

Retailers like Wal-Mart Stores Inc. and Target Corp. are feeling the heat as consumers in states across the country increasingly file sales tax class actions accusing them of things like charging full sales taxes on discounted items or shortchanging taxes on refunds...

When a retailer is unclear about how certain items should be taxed or how discounts and refunds should be handled for taxing purposes, it can be helpful to get a private letter ruling from state or local tax authorities. However, there are caveats, attorneys say.

David Hughes of Horwood Marcus & Berk Chtd. says rulings are a strong defense against consumer fraud class actions, as retailers can counter that they acted under a jurisdiction's advice. However, it may be impossible or impractical to get a ruling in every sales tax jurisdiction where a retailer operates, he adds.

"The challenge, if you're talking about national retailers, is that they're collecting tax in hundreds, if not thousands, of jurisdictions," Hughes points out. "In some of these jurisdictions, taxes are administered at the state level, so a state ruling may suffice, but there are practicality concerns, so retailers have to pick and choose accordingly."

...When it comes to sales taxes, retailers need to conduct their self-assessments with razor-fine combs in order to catch easily preventable issues their computer systems are missing, Hughes says.

"Retailers need to make sure they aren't missing low-hanging fruit...Are there items that are clearly not taxable because of exemptions, discounts or coupons? And retailers need to identify those times clearly and ensure their point-of-sale systems are up to date," Hughes says. "You don't want to get burned by a black-and-white issue that you simply got wrong."

...There is no one-size-fits-all approach to sales taxes, and the faster that retailers embrace that philosophy, the better off they'll be, attorneys say.

It's understandable why national retailers would want to find blanket approaches to their sales tax strategies, but what they really need to do is undertake a deep dive into each jurisdiction where they do business, Hughes says.

"I would be hard-pressed to come up with any one item you can assume is always taxableor not taxable," Hughes says...

To read the full article, visit the Law360 website.

Copyright 2015 Portfolio Media, Inc.

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