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Does your accountant understand your business?
August 8, 2022
Does your accountant understand your business? 
            We dealt with an interesting case a few months back.  A very well-established fire installation and monitoring company was entering a new state and asked us if monitoring was taxable in the new state.  We researched the state sales and use tax code for the state and determined that monitoring is not taxable.  We did, however, notice that there was a case in which the State claimed that it was taxable and won a large ($300,000) judgement in court. 
            We looked up the case; the taxpayer was a “summer program” company that sold an alarm system, six cameras, a DVR, and a thermostat connection for $99 down and $75 per month for 60 months.  They were audited by the state and the auditor determined that a significant portion of the $75 was not monitoring but was installment payments on the equipment and labor.  The state claimed that, since the alarm company only paid $3.50 per month for monitoring, that a 100% markup was reasonable, and that $68 of the monthly charges represented an installment sale of equipment which was taxable.  The alarm company had to fork over the sales tax that wasn’t collected.
            Our client did not give any equipment away; in fact their typical install was in excess of $10,000.  Since they typically charge $50 - $65 for fire monitoring, we were concerned that they might fall into the same trap as the door knockers.  
            To resolve this, we requested a Technical Ruling from the State.  We thoroughly explained what was going on, cited the Sales and Use Tax code, provided examples and requested that the State consider the monthly monitoring charges to be just that.  It took us a few hours and cost our client less than $1,000.  The State responded with a Technical Ruling that this was in fact monitoring and not subject to State sales and use tax. 
            Many companies, and even some tax professionals, take the position that it is better just to collect sales tax from the customer, or pay use tax to the distributor and see what happens.  In the example above, it cost the door knockers hundreds of thousands of dollars, plus legal fees.  It’s important that your tax professional not only understands the law, but also what you do. 
Mitch Reitman
Reitman Consulting Group
Fort Worth, TX
            I think a better title for this article is "Choose your professionals carefully and wisely".  Is there some reason you don't think you deserve the best when it comes to choosing your professionals?  Do you think those that charge less are somehow more advantageous to your success?  You're in the alarm business.  Don't you think you need a professional who knows that business?  Who deals with issues from numerous clients from all over the country? 
            Look I get it.  Though this isn't the rationale you'll tell yourself, choosing a professional usually comes down to selecting the "best within your budget" for the service.  The problem is that the professional in your budget may not know enough to justify the discount you think you're getting.  Worse, when you think you're getting the very top of the heap and you end up paying for a new education for the professional because he doesn't know a thing about your industry. 
            This is not a paid endorsement.  But Mitch deserves the credit he is due.  He lives and breathes tax issues affecting the alarm industry.  I don't recall any competition. 
            Of accountants are not the only professionals you'd prefer to forget.  Let's not forget us lawyers, insurance brokers, alarm brokers, risk managers, consultants and others offering their services. If you want the best advice don't try skimping with your budget.  Think about results, not so much what it cost you to get there.  Often the best who know the industry also charge the most reasonable fees because there's little or no learning curve.
            I don't want to disappoint anyone, so I'll remind you that you should be getting the best contracts at the best price for the most value at Kirschenbaum Contracts™;  And while you're at it, may as well associate yourself with the best attorneys, join the K&K Concierge Program.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301