XYZ Letters Services
At Miles Consulting Group, we recognize the complexities of sales tax compliance in today’s regulatory landscape, especially following the landmark South Dakota v. Wayfair decision. As states enact economic nexus laws, vendors are increasingly sending XYZ letters to customers, requesting information on sales tax obligations for prior transactions. These letters serve as an essential tool for sellers to ensure compliance by confirming whether purchases are exempt or if sales tax needs to be collected.
An XYZ letter is typically sent when vendors are preparing to comply with new sales tax requirements, addressing potential tax obligations from prior sales, or conducting audits. Receiving such a letter can disrupt daily operations; therefore, understanding your responsibilities and how to respond is crucial. Customers receiving these requests must verify their purchase details to determine whether sales tax is owed or if an exemption applies.
In full disclosure, we’re often on the originating/requesting side of such requests as we work with our clients to minimize prior tax exposure as they look to come forward in voluntary disclosure. Why be on the requesting side? Our clients typically undergo a comprehensive review of nexus, taxability and filing requirements. They may find that they were obligated to collect sales tax on their sales in prior years but they did not (for myriad reasons). If they either can’t collect this tax now, retroactively from their customer, or prove that their customer already paid the tax themselves, then they are liable for that tax (plus penalties and interest). So, we help them craft a plan to reach out to their customers using the XYZ letter process.
Navigating the outreach process can be challenging, and it’s vital to send these letters promptly and accurately to mitigate potential liability. At Miles Consulting Group, we provide expert guidance on managing the process, ensuring both our client and their customers understand their obligations and protecting vendor relationships. Our team is equipped to help you assess your tax responsibilities and streamline your sales tax compliance strategy, so you can focus on your core business activities with confidence. Partner with us to stay informed and compliant with the evolving sales tax landscape, minimizing exposure and fostering solid business practices.
XYZ Letters
The 101 of XYZ
An XYZ letter is a formal communication sent from a vendor to a customer, addressing sales tax obligations related to prior transactions. It typically arises from the vendor’s need to comply with new sales tax regulations following the Supreme Court’s decision in South Dakota v. Wayfair. These letters ask customers to confirm whether sales tax has been paid or if the transaction qualifies for an exemption. The XYZ letter process serves as a method for vendors to confirm compliance, minimize potential tax liabilities, and maintain clear records of their sales tax practices.
Miles Consulting Group's Outbound XYZ Letter Solution
Miles Consulting Group provides comprehensive support for businesses navigating the complexities of sales tax compliance, particularly in when and how to request XYZ letters and vendor questions. Our solution includes assisting clients in gathering necessary documentation, initiating the discussion with vendors, clarifying obligations, and crafting thoughtful answers to customer questions so that our clients get maximum compliance in the process. We offer tailored strategies to strengthen sales tax processes, ensuring that businesses communicate effectively with their vendors and remain in good standing. By partnering with our experts, companies can facilitate a smoother transition into compliance with evolving sales tax laws, ultimately protecting their interests and minimizing potential tax liabilities.
Miles Consulting Group's Value in XYZ Letters
Our value in relation to XYZ letters lies in our expertise and proactive approach to sales tax compliance. We help businesses understand their obligations and manage the response process effectively, reducing risks associated with non-compliance. Our detailed knowledge of sales tax regulations and vendor relationships enables us to guide clients toward best practices, ensuring timely and accurate responses. By partnering with us, businesses can streamline their sales tax processes, minimize exposure to liabilities, and enhance their overall tax strategy—allowing them to focus on growth while we handle their compliance needs. With respect to the hands-on portion of XYZ letters, we can assist with a.) developing a streamlined process and timeline, b.) tracking responses and non-responses, c.) dealing with customer objections, d.) obtaining and maintaining proper documentation and/or e.) training our clients to do it themselves.
How To Respond if you receive a request for an XYZ letter
Addressing an XYZ letter requires a careful review of the transactions in question. Begin by gathering all relevant purchase documentation, such as invoices and contracts. Respond to the letter by clearly identifying whether the purchased items are taxable, exempt, or if the sales tax has already been paid. It’s crucial to provide accurate information and any supporting documentation requested. Engaging with the vendor professionally and promptly is not only good business practice but also helps maintain strong relationships while ensuring compliance with sales tax obligations.
Related Services
Blogs & Insights
We have written about this topic in the past. Please review any of these articles for further information.
Learn more about XYZ Letters.
What Our Clients Say About Us
As a Tax Professional for a Fortune 500 company in the SF Bay Area, I’ve worked with Bill Loew’s team for over 10 years in the areas of Audit Defense, Reverse Audits and Tax Research. In addition to their technical expertise, the Miles Team is friendly, professional, and highly motivated to help clients achieve significant tax savings. Bill and the Miles Team continue to be a trusted and valued business partner that assist me in efficiently and effectively manage the growing complexities of multi-state sales/use tax compliance obligations.Tax Director
Sales tax isn’t an area of competency for most CPA’s. In talking with Monika and the Miles Consulting team, you can see their breadth of knowledge and experience in sales tax consulting. They are also quick to respond, are helpful, organized, and great at taking cumbersome compliance work off our plate.Corporate Controller, Technology Company
Our experience with the Miles team is that they engage in detailed research, close reading of the law and a savvy navigation of the gray areas where the law meets the business operations. This is often tricky and you have to be aware of risk mitigation, particularly in the SaaS industry, where things can be a little unclear with respect to sales tax. Tax Director, SaaS Company
Frequently Asked Questions About Merger & Acquisition Tax Due Diligence
An XYZ letter is a communication sent by a vendor to a customer regarding sales tax obligations for prior transactions. It requests confirmation of whether the customer has paid sales tax or qualifies for an exemption. Often it is accompanied by a questionnaire listing specific invoices to be addressed.
You may have received an XYZ letter as part of the vendor’s compliance efforts with new sales tax regulations. It often arises due to audits, economic nexus laws, or as a proactive measure to verify sales tax collection.
Review the transactions referenced in the letter, gather supporting documentation such as invoices, and clearly indicate whether sales tax was paid or if the items are exempt. Respond promptly to maintain good vendor relationships.
Failing to respond may lead to potential liability for unpaid sales tax, strained vendor relationships, or further inquiries. It’s crucial to address the letter to avoid complications.
XYZ letters commonly pertain to sales made without collecting tax, or transactions for which exemption certificates were not obtained.
It depends on your specific circumstances. If you believe the transaction is exempt or tax was already paid, you can contest the obligation by supporting your response with documentation.
You may need to provide invoices, exemption certificates, receipts, or tax payment records that support your claim regarding the sales tax status of the transaction.
Miles Consulting Group offers expertise in managing XYZ letters, crafting the letters, and managing the customer outreach. Some clients prefer to handle the process in house and use us for guidance along the way, while others outsource the process. We can help either way!
If you’re unsure how to proceed, it’s advisable to consult with experts like those at Miles Consulting Group, who can guide you through the response process and ensure compliance.
Yes, XYZ letters have become a standard method for vendors to verify compliance with sales tax obligations, especially in light of recent changes in tax law.
Yes, keeping a copy is essential for your records and future references, particularly if your tax obligations are questioned later.
Any industry that sells taxable goods or services may receive XYZ letters, especially those engaging in interstate transactions or those affected by recent economic nexus laws.
Address any discrepancies directly in your response, providing evidence to support your position. Open communication can help resolve misunderstandings.
Yes, there may be fees based on the scope of services provided. XYZ letters are generally not a project by themselves, but part of a more comprehensive sales tax overview and becoming totally complaint.
We offer tailored solutions that include documentation assistance, strategic advice for compliance, and support in responding to customers effectively, ensuring your business maintains compliance seamlessly.
Absolutely. Our team can support you through audits, providing expertise in documentation, strategy, and communication with tax authorities to navigate the process effectively.
