Yes! Thankfully, if the association has not been doing so, there is a way to reduce your back-tax liability, interest and penalties.
- Do you have parking that is rented out by the Association?
- Do you charge different monthly assessments for those with a parking spot?
- Do you charge a fee for a boat dock or storage of a boat, canoe or similar water craft?
Of course you do. No worries, the Wisconsin Department of Revenue, like most states, would be happy to perform an audit for you. Unfortunately, they will then also seek to collect all of the taxes due. You say: “How much can that possibly be, we only rent 15 spots a month?” Well assume the rental rate is $75 per month, that your association has never filed a Sales and Use Tax Return (which is true of most associations) and that your association is 25 years old. Considering that the tax rate is 5.6%, the interest rate is 18%, the penalty is 25%, and there is no statute of limitations (you didn’t file any return so that the limitations statute never begins to run) the amount owed to the Wisconsin Department of Revenue would exceed $65,000. Would that surprise expense create a problem for your budget? We all know that it would. But you ask, who would be stupid enough to turn you in? Or can’t we just start paying now?
Fortunately the answers to these two questions are just as simple. Who would turn you in? Do you have any disgruntled residents who feel they are not treated fairly, or simply like to show how much they know and how little the existing board allegedly knows? And if you all of a sudden just start paying, don’t you think that will alert the Department of Revenue to audit you?
So what do you do? There are some good answers – answers that could save you tens of thousands of dollars. These answers though need to come from an experienced sales and use tax attorney. Do you have one? If not, you should get one or simply email the HB Condominium & HOA Law Team and we will have one contact you. If you are not certain your attorney has the right experience, ask them how many sales and use tax audits they have been involved in? The outcomes? The appeal rights? The risks? If they can’t answer these questions off the top of their head, move on to someone more experienced.