How to Manage Your Fuel Excise Tax Audit Risk [Step 2]
- Sales and Use Tax
- February 2, 2016 | Gary Davis
If you read our last post on fuel excise tax audits, you know how critical it is to stay updated on everything from local taxes to environmental fees.
Today, we’re going to look at the next step to managing your company’s risk of an unexpectedly expensive assessment:
Monitor fuel excise tax regulations as they change
When it comes to achieving compliance, fuel companies have it harder than just about every other industry. As fuel flows down the lengthy supply chain from refiner to retailer, it’s subjected to a variety of different rules, rates and reporting requirements that vary by both the product and the taxing jurisdiction.
If those were the only complications, maintaining compliance might start to feel manageable over time.
Problem is, things change not only from jurisdiction to jurisdiction but from month to month as well. Tax rules, rates, forms and nexus requirements change constantly.
Just because you were compliant one year, there's no guarantee that following the same procedures will keep you compliant with new regulations the following year. This is especially true for companies that do business in numerous states.
If you calculate your excise taxes manually, you must always watch for potential shifts in rates and regulations. It’s not uncommon for fuel excise tax rates to change weekly in some jurisdictions, so monitoring them should be a part of your daily workflow. Regularly check rules and rates from every possible angle, including:
- Federal excise tax
- State excise taxes
- Municipal excise taxes
- County excise taxes
- Environmental fees
- Underground storage tank fees
If your company sells different types of fuels, the complexities multiply. Different rates can apply to diesel, biodiesel and different blends of ethanol...and if you apply “old” rates without catching the error in time, your company could be in trouble in the event of an audit.
On the flipside, you don’t want to pay more than you owe. This can occur when a company misses out on new tax breaks, credits and extensions or if a tax rate declines. (Yes, it does happen.) In an industry where gallons of fuel are traded in the millions, the ability to leverage incentives can be the difference between operating at a profit or a loss.
The more you stay up-to-date, the easier it will be to manage your company’s audit risks—and remain profitable, too.
Partnering with a tax automation solution provider is one way to ease the burden of tax rate research and back-office system updates. Your partner’s expert team can handle all of this for you, ensuring compliance without draining internal tax and IT resources within your own company.
Click here to read the final post in my excise tax risk series. I address the topic of audit liability as it relates to fuel licenses and exemption certificates.