CLIENT
Our client is an electrical transmission and distribution company that operates in the Southwest US. This capital-intensive business, characterized by significant construction and infrastructure development, faces substantial tax liabilities annually.
CHALLENGE
The company’s distribution operations were reclassified as manufacturing by a crucial court ruling, which made them eligible for significant sales and use tax breaks. However, this created a problem. In the two-year “gap” period after their tax audit and refund, they risked making the same errors in future audits.
Our client had to decide: should they wait for the next audit cycle to get potential refunds, which could be missed if the next audit was delayed or canceled, or should they pursue these refunds sooner?
SOLUTION
DMA proposed a strategic reassessment focusing on periods immediately following the client’s sales and use tax audit, spotting an opportunity to uncover overlooked tax savings. Upon receiving notice for a new audit, DMA capitalized on the chance to apply insights from the preliminary refund review. Because DMA was part of the audit process from the beginning, we ensured the audit samples included accounts with refund possibilities that would otherwise have been excluded. The auditor’s preliminary review resulted in a “no tax due” audit, so they were going to cut the review short.
However, when the DMA team told the client this was not in their best interest, they trusted our expertise, ensuring the final results were in their favor and allowing them to maximize credits.
By advocating for an asset sample rather than accepting the auditor’s preliminary review, DMA aimed to highlight and rectify the misclassification of taxable items. This proactive and detailed approach allowed for a deeper examination of potential exemptions supported by the recent court ruling.
RESULT
DMA’s intervention led to the discovery and recovery of over $18 million in sales and use tax savings for our client. This achievement was a direct result of DMA’s detailed and focused review process, which identified errors and ensured that items eligible for manufacturing exemptions were not unjustly taxed.
WHY DMA
DMA’s seasoned professionals, with their deep expertise and thorough understanding of transaction tax laws, were pivotal in navigating the complexities of this case. Unlike firms that might delegate critical work to less experienced staff, DMA ensured that knowledgeable experts led the effort, giving our client confidence in our abilities. Our commitment to leveraging every possible advantage for our client, combined with our strategic approach to transaction tax audits, along with tax law interpretation, made DMA an indispensable partner in securing these substantial sales and use tax savings.
