Dec 14, 2015
From KPMG TaxWatch
Recently, the Wisconsin Tax Appeals Commission addressed whether a taxpayer had to return a sales tax refund, and pay penalties and interest, to the Department of Revenue. The taxpayer operated a speedway and charged professional drivers a $25 entry fee to race. The taxpayer did not believe that these fees were subject to sales and use tax, but on the erroneous advice of his accountant, he included these receipts in his gross receipts base used to compute sales tax due the Department. He did not collect taxes on the $25 fee from the drivers, but interpolated amounts attributable to sales tax from the gross receipts. After remitting taxes for over four years, the taxpayer attended a race track owner’s convention and found support for his position that the entry fees were not taxable. He convinced his accountant to file a refund claim, which sparked an audit. During the audit, the Department agreed that the entry fees were not taxable and issued a refund. Under Wisconsin law, taxpayers that receive sales tax refunds from the Department must subsequently refund the sales taxes to customers. Any monies not refunded to customers must be returned to the Department, along with 12 percent interest and a 25 percent penalty. The taxpayer took the position that because no tax was collected from customers and sales tax was paid from total receipts, he could keep the refund. The Department disagreed and sought a return of the refund along with interest and penalties.
While sympathetic to the taxpayer’s plight, the Commission determined that the taxpayer in essence charged sales tax on the driver entry fees because amounts attributable to sales tax were determined by backing them out of the gross receipts base. While the taxpayer undoubtedly regretted following the advice of the accountant, the Commission noted that “it’s the accountant’s fault” is not a valid defense. As a result, the taxpayer was ordered to return the refund to the Department. And, in the words of the Commission, “to add insult to injury” the 25 percent penalty was mandatory and could therefore not be waived. For more information on Smith-Bisonette, Inc v. Wisconsin Department of Revenue please contact Jill Nielsen at 312-665-2794.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.