States seek practitioners shirking sales taxes

Port Richey, Fla.-Dr. Bob Hase trusted he was current with his taxes, certain he paid on time, every time for purchases in his clinic.

It wasn't until the Florida Department of Revenue stopped by that thepractitioner realized he wasn't shelling out his share.

"They spent a month in this clinic digging through my files, goingthrough every invoice on record dating back five years," says Hase,owner of Bayonet Point Animal Clinic. "We didn't have one quarter onrecord, so they simply estimated what I owed. I got clobbered."

Fined thousands in back taxes and penalties, Hase is not alone. Withstate governments besieged by staggering debt, officials are looking tofill the gaps, especially where unpaid taxes from mail-order or Internetpurchases are concerned. States complain they're losing billions becausemany online retailers don't charge sales taxes unless physically presentin the customer's state. Paying the tax is up to the buyer, and most buyersdon't.

"This whole Internet thing is a big problem," says Fred Hillerby,a lobbyist for the Nevada Veterinary Medical Association. "Our stateis looking to expand the sales tax base any way it can. I've been givingvets the heads up."

Raking it in

So has Donald Schaefer, who, as the Florida Veterinary Medical Association's(FVMA) executive director, hears from practitioners like Hase at least oncea week.

"Because revenue is so low here, they're putting out an audit onall veterinarians, trying to see if they owe taxes," he says. "Ifyou're caught, you owe a penalty, double the original tax and interest forevery year it wasn't paid. The government's in the business of trying toraise revenue, and it's really scaring people."

It's also big money, especially when factoring that many states alsotax rent, which spells trouble for owners of incorporated practices, Schaeferadds.

"In Florida, if a veterinarian owns his business but his corporationowns his building, he's liable for sales tax on the rent," he says."I know plenty of veterinarians have been caught by this. It's thesort of thing that comes to light when the government's short on money.No one cared in the boom years. Now things are getting tight and the word'sout."

Preparing for the worst

In Texas, where the deficit reportedly tops $10 billion, word is therewill be more audits to come, says Chris Copeland, lobbyist for the TexasVeterinary Medical Association.

"There's a lot of talk. The state, as a way of reducing the budgetdeficit, is looking at increasing their surveillance of all forms of incomeincluding the sales tax," Copeland says. "They're not singlingout any particular group, but veterinarians are very susceptible.

"It's like if a vet clinic has a deficit, they have to see morepeople. The government has a deficit, they have to tax more people."

Shirking the sting

That's what's happening in California, where consultant Tom McFerson,CPA, says he's seen an "explosion" of sales tax audits.

"They're just popping up out of nowhere," he says. "Idon't know if they're specifically targeting the veterinary industry orwhat. They comb through everything, from equipment purchases to leases toif a veterinary practice buys its own dog food. California will even tryto charge a sales tax on fixtures and equipment if a veterinarian buys apractice."

With that in mind, practitioners aren't left without recourse. Thereare steps owners can take to lessen the sting of audits, McFerson says.

* For starters, file tax returns on time and pay all tax billsaccordingly. Some audits are random, but you can keep from being specificallyselected by having everything up-to-date and in order.

* Do not allow auditors to snoop around your office. The morethey look, the more questions they'll ask. Request they go over your recordsoffsite at your accountant's office or with your attorney.

* Auditors will start with tax returns, trace them back to bankstatements and even look through management software. They're pretty thorough.Be upfront, but don't offer much. If mistakes are there, they'll find them.

* After being audited, don't blindly pay back penalties and fees.Make sure the sales tax reports auditors are filing are accurate. Most haveno changes, but in some cases, an accountant can review a case and lessenthe blow to your pocketbook.

* Finally, keep your tax records clean to avoid being reviewed.Auditors are in it to make money, so if you have a clean record when theycheck, they might not come back a second time.