A major international food chain was under audit for its buildout of a store in New York City. After a grueling two year old sales and use tax examination underway with another accounting firm— with a projected liability of approximately $450,000 in addition to interest and penalties of about $100,000 — the taxpayer turned to the State and Local Tax (SALT) group of Friedman for assistance.
Despite many difficulties at hand:
- Only 6 weeks remained till the deadline for the final audit examination;
- The construction contracts and other pertinent documents were destroyed by a flood that impacted its New Jersey corporate office;
- Much of the company's invoices with respect to the capital improvement work were lost when they moved their corporate offices from New Jersey to New York; and
- A new Controller had been put in place since the prior Controller stepped down during the course of the examination
the SALT group stepped in to strategically overcome this challenge.
Combing through general ledger entries, the group was able to identify vendor information and reached out to numerous contractors, builders, suppliers, and other vendors to collect hundreds of issued invoices. The group also collected photographs and blueprints from contractors of the buildout to illustrate that particular tasks were capital improvements and also sat down with the auditor on several occasions to review documentation.
With their resourcefulness and persistence, the SALT group ultimately succeeded at eliminating more than $500,000 in combined liability, interest, and penalties – demonstrating that numerous charges were capital improvements, thereby exempting the company from sales tax.