A construction company was unsatisfied with the service it was receiving from a downtown Portland firm, and even more unsatisfied with the fees they were paying for that poor service. Frustrated, they came to us for help.
They needed tax returns and reviewed financial statements in order to meet financing covenants with their bank. Soon after our staff started working on their books, we noticed that the company had a substantial amount of revenue coming from outside the state of Maine. This raised a red flag for us. We were concerned with whether or not the company had nexus in other states.
When a company has nexus with a state, it means its activities in the state are substantial enough to create a tax filing obligation. These obligations can include sales and use tax, income tax, franchise tax, or other business taxes. The problem is that no single definition for nexus applies to all states. In some states a physical presence is required (for example, owning property, leasing an office, employing people, etc.), but in other states this is not required. Therefore, a good tax accountant must review and understand the nature of your business operations and the statutes and rulings in each state in which you are doing business in order to really help you remain in compliance and avoid penalties.
So, we dug deeper and reviewed all the facts and circumstances of the company’s out-of-state operations. We discovered that, in fact, the company did have nexus in other states. And, because the company had not filed returns in those states in prior years, the statute of limitations clock never started running – that is, the state could discover the lack of filing more than three years after the fact and still require a filing and assess penalties and interest. Obviously, this could create quite a large liability that a company is not prepared for.
We inquired of the prior accounting firm why no tax returns had been filed in those states, and their response was that they were completely unaware that company did any business outside of Maine! That’s unfortunate because it created a potentially devastating problem for their former client. We took the time to really think about our client and their unique situation, and were able to help them meet all of their tax filing obligations.
Companies often select an accounting firm based on its size and prestige. And too often big prestigious firms rely solely on their size and prestige to retain clients. But size does not necessarily equate with quality, and prestige needs to be backed up by performance.
We take the time to ask the right questions and do thorough research. We take the time to think about you. At Royer, we are big enough to serve our clients and small enough to really care about them.