Hindsight can be 20/20 regarding Purchasing Card programs and tax compliance. Many organizations overlook tax or unknowingly place their trust in myths. Either way, a big crash at the end of a tax audit is likely. Tax veteran Greg Anderson, Application Design Resource LLP, wants to spare organizations such pain, so he shared common myths with me, based on his 20+ years of experience in this field.
Myths
Our P-Card program is too small to worry about.
The card program should never be swept aside. Even when a program starts small, it usually grows, becoming a bigger headache when tax audits end with poor results, such as assessments and penalties.
The tax department handles this.
This is often said by procurement or accounts payable (depending on who manages the card program), but nothing could be further from the truth if the tax department was never consulted. Unfortunately, most of the time, the card program management team does not have any relationship with the tax folks and tax compliance slips through the cracks.
Our bank/issuer sends us tax reports.
There is a kernel of truth here, but... Issuers typically provide reporting related to Level II data, but such reports are not relevant to tax auditors since the data represents tax paid versus tax that should have been paid.
The remaining three myths stem from management hopefulness or lack of awareness about actual purchasing activity by cardholders:
- Merchants pass a tax amount on all of our transactions.
- We only buy from local merchants.
- Our cardholders only buy items for which merchants collect tax.
An organization’s situation is seldom this rosy, so just assume none of these things apply.
Organizations often accelerate P-Card usage without considering tax compliance, but the issue will catch up with a program.
Taking Action
Having an effective tax strategy begins with communication. Ensure you have clear answers to:
- Who is responsible for our P-Card tax compliance?
- What is our tax strategy for the P-Card program
- What have tax audits revealed?
- How can we improve?
See a previous blog post that summarizes key tax points and includes links to additional tax content. If you are seeking a more automated solution to tax management, Recharged Education can provide guidance; please submit a contact form.
“You can’t help but... with 20/20 hindsight, go back and say, ‘Look, had we done something different, we probably wouldn’t be facing what we are facing today.’”
About the Author
Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…