Time to Break Up with Your CPA? Sales Tax Consulting Explained

Is your business sitting on a hidden sales tax liability? In this episode, Danny Wright and Paul J dive deep into the most complex sales tax consulting scenarios they encounter daily — from construction industry taxability nightmares in Texas to software licensing and SaaS taxation across multiple states. They break down why a one-size-fits-all approach to sales tax compliance can cost your company millions.

🔍 What You'll Learn in This Episode:

📌 Why construction companies face some of the most complex sales tax challenges — and how even state auditors get the rules wrong on lump sum vs. time and materials contracts

📌 The hidden complexity of software licensing and SaaS taxation, including use-based sourcing and multi-state rate determination that most businesses overlook

📌 How Voluntary Disclosure Agreements (VDAs) actually work — and when a state might deny your VDA application altogether

📌 Why historical registration might be a smarter alternative to a VDA depending on your exposure period, filing frequency, and penalty waiver likelihood

📌 The dangers of relying on CPAs, fractional CFOs, or outsourced providers who lack specialized sales tax expertise — and how simple mistakes create million-dollar-plus liabilities

📌 A layered risk analysis approach that goes beyond standard nexus studies to evaluate state-by-state risk, penalty forgiveness probability, and cost-benefit of different remediation paths

📌 Why rapidly growing businesses need to address sales tax proactively before hockey-stick revenue creates an unexpected compliance crisis

💬 Key Takeaway: "The complexity surrounding construction in the state of Texas when it comes to lump sum versus time materials, it gets really robust and gets really complicated. Even for auditors... we end up educating a lot of auditors on their own legislation in their home state." — Paul J

🤝 Whether you're a business owner, CPA, fractional CFO, or financial advisor, a free sales tax consultation can uncover blind spots you didn't know existed — and provide an actionable game plan to protect your business.

📞 Ready to uncover your sales tax blind spots? Reach out to The Sales Tax People for a free consultation — no sales pitch, just expert guidance from professionals with decades of experience.

Transcript

SPEAKER_02 0:00

You're listening to the Sales Tax People podcast.

SPEAKER_00 0:07

Is your business sitting on hidden sales tax liability? In this episode, Danny Wright and Paul J dive into the most complex sales tax consulting scenarios they encounter daily. From construction industry taxability nightmares in Texas to software licensing and SaaS taxation across multiple states. They break down why a one size fits all approach to sales tax compliance can cost your company millions. And that's actually not a joke. Anyway, here's the episode.

SPEAKER_03 0:32

All right. Just hanging out with PJ here.

SPEAKER_01 0:43

It's always a treat when we get Danny in the office.

SPEAKER_03 0:45

Yeah, so it is. So I can snack on the treats and the nice beverages that we have, but that's not even the sweetest treat, right? It's it's just nice to be in person. Always good. We're missing a par today. We will uh offer him an excused absence. This is true. The show must go on, right? We gotta keep jibber jabbering and talking about good sales tax stuff. Diving right into that, actually, something that's been on my mind with some recent conversations we've had, some projects we're working on. I'm curious to hear from you of like what comes to mind when I ask about some of the most complex sales tax situations that you've seen.

SPEAKER_01 1:25

Most complex situations. Yes. I think the one that comes to mind most recently is just one that we're working on right now, actually, with a company in Texas in the construction industry. They provide a lot of repair remodel and new construction and the taxability therein. So they're under a big audit, they should be multi-million, tens of millions of dollars and the liability and because the auditor imposed tax on all of their invoices, all their services they provide. But without truly understanding the nature of what they're doing. So the complexity surrounding construction in the state of Texas when it comes to lump sum versus time materials, it gets really robust um and gets really complicated. Even for auditors, I think, in my opinion, we end up educating a lot of auditors on their own legislation in their home state of why it is implied and why it's not implied.

SPEAKER_03 2:18

A tax that is Yeah, a couple couple highlights there that one we talk about all the time when it comes to taxability. And you talk about different industries, you know, e-commerce is a big one that people think of when like sales tax is an issue because you know it's multi-state. SaaS is another, you know, very common one. In fact, a lot of the up-and-coming providers, you could say, in in this space, right, of sales and use tax, mainly sales tax, are very much focused on e-com and SaaS companies. And one that we talk about all the time is construction, because it really is such a complex taxability space, right? Like just the rules and there's just so much in it, right? We don't necessarily need to like go into that specifically today, but that's that's a really good example. It's one I've been thinking a lot about lately as we've talked about internally this project and the nature of it and just why it is such a big risk for the company, and and it's also why it's such a big win and for them to find us and a big opportunity for us to come in there and and help them save millions of dollars, really. Like it's not it's not hyperbole in this type of situation with the company to talk about saving them millions of dollars. It's a great highlight of why it's so important to you know have a discussion with someone that knows, right? An expert in that field rather than saying we can handle this audit, like we have someone internally that has bandwidth to you know have the conversations with the auditor, provide them with the information they need, the information they're asking for. And even within that, that's a problem because you don't necessarily want to, or you absolutely don't want to provide the auditor with all the information they're asking for, because some of it could certainly fall outside of their jurisdiction and it's information that they don't need to have and you don't want them to have.

SPEAKER_01 4:07

The other complex issue that comes up a lot, especially in our in the current landscape, are the licensing, software licensing. Completely separate, right? Than construction, you're purchasing a license. And whether that be a software license or a software as a service, the complexity surrounding that is all based on where the where the service or the license is being used and consumed. And getting that right from a tax perspective as the seller of the software or the seller of the service and the consumer, you both have a little bit of responsibility there to make sure that you're paying the applicable amount, the right amount. And so you get into that space a lot, especially as of late, when you get a lot of these software companies or software as a service companies who don't really truly understand where the customer is located, or they don't understand where the product is being used. And so just their inability to charge the correct rate gets really messy really quickly.

SPEAKER_03 5:01

Yeah, it's a it's a big challenge for a vendor and uh the actual consumer. When you consider a business, if if you have a vendor that's paying enough attention to detail to say, like, look, we're selling you a thousand licenses.

SPEAKER_01 5:16

Right.

SPEAKER_03 5:16

And we're billing you based on your headquarters in Orlando, Florida. Right. And that's very common practice to just charge tax or actually even exempt SaaS based on you know the taxability and of course the rate at their headquarters there in Orlando, Florida. Well, if they're paying attention to those details, they could go to their client and say, okay, we're selling these to you, but we need to know where the licenses are actually being used. So now it's a tremendous burden, can be a tremendous burden on the consumer in this case, to even try to like tell the vendor like, you know, where all those licenses are being used. And so it's it's a sticky situation, like even with you know the flow of the business and maintaining good relationships and just kind of the nature of the customer experience, all that stuff. So it's that's an extra tricky one just because you are managing that relationship, right? It's not one where you want to just say, like, this is the way it is, and this is the way we're gonna do it, because you might in fact lose some business if you're you know that kind of strict about it, you could say. Um that's uh you know, two major ones that you bring up that also somewhat fall into perhaps kind of a more broad one. And that is, you know, the what's been on my mind even as I you know was coming into this conversation wanted to ask this question is these scenarios where business has significant exposure, right? Because they usually it's one of two things. They either collected the tax and they didn't remit it correctly, or they didn't remit it at all because no one was on top of it to actually get them registered in the state and file the return. So it's just that type of situation where there's significant past exposure and you need to address it because you want to, you know, clean up the past, especially with companies that are looking to uh be involved in some sort of MA discussion, you know, due diligence, buyer side, seller side, right? Mainly for on the this would be the seller side for these companies that are looking to clean up their past exposure. And then you have the companies that are in a similar situation, but it's one where they just didn't stay on top of Nexus, right? They didn't stay on top of their responsibility in the States as it came up, and of course, you know, end up in a scenario where they didn't collect tax at all and they didn't register. So, you know, there's there's unique aspects, of course, to every company we talk to. Literally every single company, there's unique things to consider. And that's why it can be so complex because it's it's not just, hey, let's go do VDAs to clean this up. Right. That that's sometimes the advice they get, or it's you know, the the approach the companies take. And that's a painful one when we, you know, get come in as a second opinion far enough down the road to where a lot of those decisions have already made been made, and even you know, like VDAs have been completed. And you know, there's there's ways to approach this that are very important to have all the information in front of you and then have that variable in place that is the expertise and the experience that just takes everything into account. And you know, not being like more specific with that, there's you know, it's it's a it's a daily conversation for us, right, with companies that come to us with this type of situation. And then there's at least a weekly one that is significant, right? I'm talking about usually at least a million dollars or more in uh actual exposure. And the thing that comes up is when it comes to BDAs, like what do the states do, right? Like they have their voluntary disclosure program. But one thing that came up recently in discussion with us is this company's looking at only about seven, eight months of past exposure. So the state actually might deny the BDA, right? Like, what does that usually look like?

SPEAKER_01 9:06

Well, I mean, when you go to the state and you let them know that you want to voluntarily disclose this liability and it's only for a short period of time. I mean, well, that's one of the big big, big, big, big benefits of doing a voluntary disclosure agreement is that it limits the look back period because under audit, the statute of limitations doesn't apply to a return that wasn't filed or tax that wasn't paid. And so when you've been doing business for a while, I mean it's a big benefit of, hey, we're not even gonna look at the tax, let alone assess penalty and interest on it. We're gonna forgive the tax prior to the statute of limitations. Well, the opposite is also effective where you've only been doing this for a few months. Well, the state doesn't want to go through all the rigmarole roll, the administrative hassle and putting all the contracts and agreements together to do a voluntary disclosure agreement if it's less than a year, more times than not. They'll still want to go back three years or four years. And then you'll tell the state, well, there there's no data. Well, then we're not going to do a voluntary disclosure agreement for three months, for six months, whatever, whatever it may be. But you'll still get some states that will be grateful.

SPEAKER_03 10:10

Yeah, you also have some states and you know, one of the considerations of just registering historically, right? And go file those back returns. Again, there's pros and cons to each decision for sure. And you just again keeping it high enough level, you know, but you know, uh adding a few details here of again, something we talked about very recently of you know, registering historically and and petitioning the state to give you a you know annual filing frequency. So if it goes back even two years, you don't have 20 plus returns that you have to file. Right. And you can file less returns, there's less cost if you're using a third-party provider like us to file those returns. So the cost of the service itself is going to be less than a VDA in that case. However, then you're talking about penalties, penalties and interest, right? And specifically the penalties that, as a general rule, get waived under a VDA. So you just got to consider that and consider states that have a higher likelihood of forgiving the penalty, right? Or waiving the penalty, even in that, you know, historical registration uh process. Again, we really could talk for an entire hour at least about you know this particular type of uh situation where there's past exposure, but that's one that comes to mind of just really emphasizing the need and the value of having a conversation and getting that second opinion because there's you just got to consider all these different variables and you know, some we we love to do, especially in cases where there's significant exposure, of taking the time with the company and their internal team, their CFO controller, you know, finance people, even you know, CEO and ownership group to talk through all of these different options and even you know put together a report that's a risk analysis. And it's not just a risk analysis in the sense of like the way the the market uses it of let's determine when you establish Nexus and you know how much you have in taxable sales since then and looking at their potential you know tax and penalties and this interest. But it's going you know beyond that and adding these layered details of some of what we've discussed here of you know which states are more risky than others, what what states have a high likelihood, for example, of waiving penalty when you do register historically and as like a one-time favor, you could say.

SPEAKER_01 12:34

Right.

SPEAKER_03 12:34

Um they'll actually waive the penalty. So that's that's just a a major highlight on having a conversation and with this type of situation, really with all three of those that we mentioned.

unknown 12:47

Yeah.

SPEAKER_01 12:47

The truth of it is that I mean, businesses are not necessarily in business to understand and implement, you know, sales tax. It's like the last thing they're trying to do. I mean, how can I get the product quicker out the door? How can I reach more customers? How can I, you know, they're all just from a business perspective trying to generate revenue and create a lot of sales. And so when you when you tack on the tax aspect, they're like, you know, I'm not worried about that. And then some businesses, I mean, it's more like a hockey stick. Well, last last month we did a hundred thousand in sales, and this month we did a million dollars in sales. Like, wow, you guys grew really, really quickly, and now all of a sudden you have this huge liability. Or you go years and years, you fire the CFO and you hire a new CFO, and he's like, hey, this guy never even looked at sales tax. It's like, well, now you have two years worth of liability that you gotta figure out just because somebody wasn't paying attention to it. So, I mean, I understand it from a business perspective, but it it doesn't have to be that way if you're just cognizant of it, you know, and just ask a simple question or have a little discussion or whatever it may be, just to put it on your radar at least.

SPEAKER_03 13:58

Yeah, sometimes unfortunately, it comes down to fractional or third-party providers that are you know in charge of that. Like just got out of a meeting with a company that has more than a million dollars of past exposure based on what could be called some simple mistakes that were made. And that in this meeting, it came to light that the company was using a fractional service provider, and you know, they were in charge of the accounting, but they were really like moonlighting. And, you know, either it was probably a combination of ignorance, but there was also like neglect of just like, I don't need to worry about that, right? I'm I'm like have my you know certain hours of work, and there's like specific, you know, KPIs that I have and and work that I'm doing, and like, you know, things I'm reporting to the board and doing all the things that I'm doing, and sales tax is not one of them. It's just an obstacle to me actually performing how I want to perform and how the company is looking at my performance. And there's all kinds of you know different scenarios there, but when it comes down to it, some of the worst situations we found is is with companies that have used third-party providers, not that not necessarily sales tax providers, but just say like a CPA that just was way outside of their lane.

SPEAKER_01 15:16

Well, I I I'm working with this CPA and he he's dealing with all my taxes. Oh, he's dealing with all your taxes. No, he doesn't have a clue what you're doing for sales tax in the neighboring state. He he barely has his hands around the state where he's currently in, let alone you just made, you know, a lot of sales across all the the other states, and now he's completely out of water. But assuming that your CPA is managing and handling it, yeah, you'd never want to do that. You just want to ask a couple of questions and find out. I mean, we have more and more conversations specifically with CPAs who are like, yeah, I don't I don't know I don't know the sales tax legislation in Colorado. I know it here in in Nevada, but I don't know it over there in Colorado, right? I got it. Uh I'm in Oregon. They don't have any sales tax. Well, your customers or your clients are selling into Washington. They have a sales tax in Washington. Yeah, but we're based in Oregon, we don't have a tax.

unknown 16:14

Yeah.

SPEAKER_01 16:15

It it just it's really sad and really disheartening when you run into those scenarios with huge liability, huge exposure, all because you made the assumption that your CPA was handling it or your outsourced CFO was handling it, or whatever it may be.

SPEAKER_03 16:30

Yeah, just take a little bit of time to dig into it. And I and actually some of the best advisors are the ones that say, I don't know, when it comes to, you know, out-of-state sales tax across the US, because then those are the ones that, you know, seek out a a group like ours and you know, have the super valuable conversation to understand there is a resource and a group that handles this and is very consultative and you know, steady and deliberate, as we like to say, in in our approach. And you know, that ties right into all of these different, you know, complex scenarios that we described today. It's yeah, it's it's part of the really the value that we take from our work that you know is is part of why we've been here, you know, me for 10 years and you almost two decades now, right? Like sales tax is really I tell people all the time, sales tax is ridiculous, right? The way it's set up is just it really is just so dumb.

SPEAKER_01 17:24

Yeah, it's complicated, it's messy, frustrating.

SPEAKER_03 17:26

Yep. And we say like we love sales tax. We don't love sales tax, we love being in the position we are to help companies deal with it so they don't have to, right? And it's have it done in a way. Yep.

SPEAKER_01 17:38

Yeah, there's so much fulfillment that comes from just helping clients understand where the blind spots are and what to watch out for. Hey, this is a current blind spot taxes. You're not thinking about sales tax. So let me just help remind you of what to watch out for, what to set up, what to integrate, so that it it's not a problem for you now, and it's definitely not a problem for you five years from now, three years from now, twenty years from now when you want to retire, type of a thing. Uh it's better to just address it now.

SPEAKER_03 18:06

Yeah. Yeah, it's it's a great place to be and an awesome thing to help with. And heck, uh as I talk about me 10 years, you 20 years, if Bar was here, we'd be saying 30 years. So there you go. So true. Let's find someone that's been in around for 40 years. Gracious. That'd be tough. That would be tough. Oh, that's a good one. Lots of value here, and just another emphasis on companies getting a second opinion. And certainly for you know, those CPAs and financial advisors, accounting, and you know, people, there's there's more and more of those as you look at even just different software solutions and just all the all the uh great advisors out there that really add tremendous value, especially for growing companies. And uh, you know, that's just uh you know, really emphasizing that type of conversation that we love to have with uh those types of partners. And it's it really is invaluable in so many ways to add value to your relationships with your clients as an advisor by bringing in someone that you know is has specific expertise in sales tax. Yeah, that have you ever come away from one of our you know free consultations or you know our free phone calls where someone's like, dang, I wish I wouldn't have spent that 30 minutes with you guys. Never.

SPEAKER_01 19:22

Never legitimately never.

SPEAKER_03 19:24

It really is always the waste. Yeah. It's always gratitude, just like thank you for spending the time. And even when we talk about ask some of the questions and we like get deeper and talk more about the sales tax, and and oftentimes you could say highlight blind spots that this company's had and and like showing that look, your situation's actually worse than you thought it was. Even like coming away from a conversation like that, I find there's still, you know, peace of mind that the client is finding by understanding more than they ever have before, and then having a game plan to deal with it, and certainly by having, you know, a trusted advisor in place to help kind of hold their hand through that process. Yeah, no doubt.

SPEAKER_01 20:07

And even on the complete opposite, where you chat with a company and things are actually in a pretty good spot. And, you know, what they've been doing or where they are now isn't putting them in any potential harm or risk they're not taking on by not doing a registration or filing a return or what have you. Even in those situations, gathering the peace of mind and confidence that, oh, we're on the right track, we're doing the right thing, we got things set up through the correct way, or for the most part, we're managing this in a really good spot. I mean, it's very rare that we have those conversations. It seems like I don't know, one in probably thirty or forty conversations. We have something that's I don't know, you guys are actually pretty good. More times than not, it's yeah, you're missing this and you're missing this, but overall, yeah, keep doing what you're doing. Yeah, it it goes a long way. Clients really do appreciate it. There's a lot of fulfillment also selfishly that we get out of that and and helping and guiding clients down that path. So everyone call Paul. Well, no, no, no. Don't know don't all call me.

SPEAKER_03 21:13

This is the time when we're, you know, in the video, we're gonna be flashing Paul's phone number on the screen.

SPEAKER_02 21:25

Thanks for hanging out with us on the Sales Tax People podcast. If you want to talk about sales tax, or maybe you have an experience that goes along with something we talked about today, or maybe you just want to hear about how Paul's day is going, make sure you send us an email to podcast at sales.tax or you can text us at nine four nine three five five five zero nine eight. See y'all again soon.