Tax Alert

Recent SEC Action Focuses on Corporate Sales Tax Function

(April 5, 2011)

The Securities and Exchange Commission (SEC) has begun levying fines on companies that it believes don’t have sufficient controls over their sales tax processes. The SEC’s action, paired with company officers being personally liable for unpaid sales and use tax and states chipping away at the nexus standard established by the U.S. Supreme Court, should spur companies to re-examine internal sales and use tax compliance procedures and controls as part of their annual testing under the Sarbanes-Oxley Act or potentially face heavy penalties.

In an administrative cease and desist order, the SEC fined Hudson Highland Group, Inc. (HHG) $200,000 for the company’s purported failure to “maintain internal controls and books and records relating to its sales tax liabilities.” The order suggests that HHG was not able to quantify a sales tax liability without expending a great deal of effort. In addition to the fine, HHG could face collateral reputational damage from the publicity surrounding the matter.

The order makes clear that the SEC expects registrants to address their sales and use tax deficiencies proactively or else face censure and fines.

A copy of the order can be found here.

For more information on how this might affect you, please contact Dan Megathlin at 404.442.1613 or dan.megathlin@crowehorwath.com, Jeff Greene at 317.706.2740 or jeff.greene@crowehorwath.com, or any Crowe Horwath LLP tax professional.




Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.

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Daniel Megathlin
Daniel Megathlin
Principal,
Indirect Tax Services Leader