How Banks Can Benefit from Sales Tax Refunds: Strategies and Tips

Sales tax refunds represent a unique and untapped opportunity for banks to recover funds that are often left on the table. Due to the complexities of the tax landscape, many banks miss out on these potential windfalls simply because they aren't aware of their eligibility or the strategic approaches available to them. With the evolution of tax laws and digital tools, financial institutions can now navigate the refund process with greater ease and effectiveness than ever before.

Unlocking the potential of sales tax refunds requires a thorough understanding of tax regulations, meticulous documentation, and strategic planning. As banks seek to optimize operational efficiency and expand revenue streams, leveraging sales tax refunds can yield significant benefits. In this article, we will guide you through the strategies and tips necessary for banks to successfully capitalize on this opportunity, thereby enhancing their financial standing and reinforcing their commitment to maximizing value at every level.

Key Takeaways

• The banking sector faces challenges with sales tax due to evolving regulations, resource gaps, information mismanagement, and outdated software.
• Our strategic approach to recovering overpaid sales tax involves examining state tax laws, evaluating benefits, gathering detailed information, filing refund claims, and offering remediation recommendations to prevent future issues.
• It’s challenging for organizations to navigate sales tax complexities. Engaging with a professional can help you achieve significant tax refunds while minimizing business disruption.

Common Sales Tax Challenges

Due to changing sales tax laws and various exceptions to sales tax rules, most banks are unaware that they may be exempt from paying sales tax for certain services or products. This can happen for a variety of reasons. Still, it really trickles down into three major buckets: resource and knowledge gaps, information dilution, and inefficient or inaccurate software, all of which contribute to misaligned goals.

Resource and Knowledge Gaps

Time and productivity are of the utmost importance, and many companies focus on future business and success rather than looking backwards. However, looking back at historical data can help identify cost savings and stimulate better operational efficiency. Unfortunately, most banks lack the capability to allocate employee time or possess specialized in-house knowledge to review past tax payments. As a result, banks may unknowingly pay sales tax on services or products for years, accumulating a significant fee.

Information Dilution

Like anything with a multi-step process, it’s easy for inaccuracies or misinformation to occur. The accounting process often requires multiple layers of approval, which can introduce a level of risk due to assumed accuracy, or, in worst cases, an undetected systemic bottleneck or vulnerability. We see this across clients in the banking industry because it’s challenging to detect a discrepancy once it reaches the end of the funnel, especially when you don’t know it’s incorrect.

Let’s say the bank receives an invoice from a software vendor. The accounting department noted that the invoice is inaccurate, but the invoice software overrode that and flagged the invoice as correct. It is probable that the seemingly correct invoice would be processed and paid, although it’s incorrect, because the software is tax-exempt in that particular state.

Outdated Software

Technology and innovative software bring companies ample benefits. From automation to enhanced productivity to improved communication, most, if not all, companies rely on technology to keep up with day-to-day business demands. Due to this reliance, it’s easy to forget that technology isn’t without fault. Technology requires continuous monitoring and updates for proper maintenance, accuracy, and compliance. You might not even know it, but your software could be corrupted or reverting to outdated formats, processing payments with inaccurate tax codes.

Five Steps Toward a Successful Sales Tax Refund

The key to a successful sales tax refund is a systematic approach that identifies, verifies, and claims overpayments. Here are the five steps to help you recover your funds:

1. Examine existing state sales tax laws: Review existing sales tax laws across states to identify grey areas and loopholes, which can reveal potential tax refund opportunities.
2. Evaluate potential benefits: A thorough, high-level evaluation can be performed without disrupting your business. This involves looking for potential exemptions and exclusions that may be applicable, as well as reviewing historical payments from the past three to four years, depending on state laws.
3. Gather detailed information: Once it's determined that a significant overpayment exists, you can begin to document information from account and invoice reviews. This creates a comprehensive overview that determines your refund eligibility and initiates the filing process.
4. File a refund claim: After the overpayments are identified and documented, you can file a claim for the refund with the appropriate taxing authority. Specialized knowledge is key to meeting with these authorities to explain and defend your position, answer any questions, and provide additional information regarding the claim as needed.
5. Remediation and recommendations: At the end of the review, examine all findings and recommendations. These might include:

• • How to correct past issues that created the overpayment
  • New software recommendations
  • Use of a simplified decision matrix for use tax accruals
  • Educational overview for future tax savings
  • Conduct refund reviews every two to three years to proactively maintain process and system integrity, and to stay aligned with evolving sales tax laws

To fully complete a successful refund process, it’s important to work with a third-party sales and use tax team. The right team understands the importance of transparency and accuracy and is dedicated to helping you recover what is rightfully yours.

Navigating Sales Tax with EisnerAmper

Our sales and use tax professionals strive to deliver quality services, accurate tax returns, and sales and use tax refunds where applicable. With decades of experience, our team has had ample success assisting banking clients across multiple states. We recently helped a banking client obtain over $2 million in sales tax refunds, and we have also helped several others obtain six and seven-figure refunds.

Having a professional team that can come in every three years with minimal business disruption is not just a good maintenance practice; it’s a competitive advantage that can keep you operating efficiently and saving thousands of dollars every month. To learn how our team can help you, contact us below.

Other industries include, but are not limited to:

• For-profit healthcare (e.g., hospitals, clinics, surgery centers, etc.) 
• Hospitality (e.g., hotels, condominiums, resorts, etc.)
• Construction (e.g., repair companies, equipment companies, etc.)
• Manufacturing and distribution companies
• Entertainment (e.g., professional sports teams, casinos, broadcasting, etc.)
• Private equity portfolio companies
• Retail chains (e.g., convivence stores, department stores, supermarkets, restaurants, etc.)
• Other companies in the financial services industry (e.g., mortgage companies, insurance companies, etc.)
• Franchisees across industries