John DaltonDirector Sales Tax Compliance

July 13, 2010

Wal-MartSales Tax

Compliance

Warren TownsendSenior Director Specialty Tax

Saving people money so they can live better

Sales Tax Compliance2

Wal-MartA Good Corporate Citizen

24,518$ 285.8 millionMississippi

35,348$ 495.4 millionLouisiana

32,175$ 246.0 millionKentucky

52,545$ 506.7 millionGeorgia

90,259$ 765.4 millionFlorida

47,108$ 375.7 millionArkansas

37,583$579.2 millionAlabama

Associates Employed in

State

Sales Tax Collections

FYE 01/31/10

SEATA State

Sales Tax Compliance3

Wal-MartA Good Corporate Citizen

490,695$ 5.1 billionTotal

12,255$ 126.8 millionWest Virginia

39,060$ 281.5 millionVirginia

40,621$ 663.1 millionTennessee

27,636$ 244.6 millionSouth Carolina

51,587$ 542.3 millionNorth Carolina

Associates Employed in

State

Sales Tax Collections

FYE 01/31/10

SEATA State

Sales Tax Compliance4

Today’s presentationis dedicated to . . . .

Three types of people:

1. Those who make it happen!

2. Those who watch it happen!

3. Those who wonder –what happened?

Sales Tax Compliance5

Key Issues in Sales Tax Compliance

1. Tax Rates

2. Taxability of Items

3. Tax Free Holidays

4. Return Preparation

Sales Tax Compliance6

RatesNationwide Business – 7,600 rates

Specific Store/Club issues

Rate Notifications – State, City, County changesCCH, state websites, occasionally post cards

Annexation by a cityInformation follow-up

Stores split by two countiesi. e., North Carolina food tax

Native American ReservationsTribe and State

Wal-Mart.com Destination Sales

Sales Tax Compliance7

What’s so hard about a Rate?

January & July changes are usually more activeUsually at least 400 stores affected

8,359 yearly rate changes

ArkansasGeneral rate (State, County, City)Food rate (portion of State, County, City)Prepared Food Rate (Little Rock 2%)

Donuts, Deli items, Snack BarAlcohol rate (beer/wine)

Sales Tax Compliance8

Cash Register TapeExample of ArkansasWalmart

MANAGER ANGEL GUZMAN( 479 ) 565 - 0274

7.500%3.500%2.000%3.000%1.000%

Receipt Codes:A = Tax 1 OnlyB = Tax 2 OnlyP = Tax 1 & 4R = Tax 1 & 6S = Tax 1 & 7

Sales Tax Rates:Tax 1 = General Merchandise RateTax 2 = Food RateTax 4 = Prepared Food RateTax 6 = Wine RateTax 7 = Beer Rate

Sales Tax Compliance9

How do we insure rates are changed at the store?

Automated Maintenance sent from Bentonville

Smart System holds rate maintenance for two weeks

Notification of changes to a storeGuidance for midnight uploadAutomatic upload rebootmidnight time stampController updates store

Sales Tax Compliance10

How do we ensure rates are changed at the store?

Store Personnel

Looking for changes via email instructionsfrom Bentonville

If registers don’t updateService Manager manuallyrefreshes the registers

Sales Tax Compliance11

How do we ensure rates are changed at the store?

Rate Change Reports run for every store inthe stateManually review expected rates versus storecontrollerDifferences are resolved, manually updatedfrom Bentonville, within 15 minutesWal-Mart Tax associates are in our officesfrom Bentonville 10:45 CST (11:45 EST) untilall rates are confirmed (potentially 2:30 a.m.for west coast stores)

Sales Tax Compliance12

Tax Free HolidaysBack to School

Hurricane PreparednessEnergy Star

Firearms

Food Items

General ExemptLouisiana, Vermont

Items exempt under set dollar threshold

Sales Tax Compliance13

Sales Tax Holiday ImplementationsTrack legislation year round

Items –Notify merchants of items included in holidayQualified items are segregated from GeneralMerchandiseTax 1 category now becomes Tax10 category

Rates –Store Smart System – at midnight, rate changesto zeroEnd of Holiday – rate returns to Tax 10 category

Sales Tax Compliance14

Difficulties with Sales Tax HolidaysIndentify items that qualify

Example: yellow highlighter may not beeligible for the school supply holiday

Prepare for customer callsChange tax when we shouldStores have been provided documentationfrom state websites which include:

copies of the qualified itemsState Department of Revenue telephonenumbers

Sales Tax Compliance15

Taxability of Items

Items in a Supercenter – 500,000 SKU’s

Items in a Sam’s Club – 50,000 SKU’s

New Items each day2,500 Wal-Mart500 Sam’s Club

New Items assigned for year ended 1/31/10 – 554,427

Tax Flag Staffing: 5 associates

Request letter opinions on gray areas

Sales Tax Compliance16

Key is Uniform Definitions

AR, GA, KY, TN, NC – By Streamline definitions

Colorado – state/city have exact statues, but define food differently

Streamline MatrixJuices = Soft DrinksCandy / FoodRX / OTCClothing / Accessories

Sales Tax Compliance17

Taxability Process

Descriptions from buyers / internet

Set up by categories / subcategoriesBasic Food / Juices > 50%Basic Food / WaterBasic Food / Ice

Sales Tax Compliance18

Taxability Process

System defaults to TaxablePO created to purchase itemBuyer creates SKU numberSKU number goes through computersystemTo Tax where item number is assignedFrom Tax Flag Setting to store receivingsystemItem arrives at stores taxedcorrectly

Sales Tax Compliance19

Return PreparationReturns

1,800 returns filed monthlyAnnually: last year over 23,000 returns were filed

StaffSeven accountants trained in sales tax

Difficulty is in preparation of the returnComplexity of return by stateDetailed information requested by stateGross Sales Tax by physical locationWe prefer electronic returns

Sales Tax Compliance20

Daily Process1. Tax is collected from the

customers at the cash register2. Sales report is generated in store’s

business office (reconciliation ofcash & sales)

3. Sales/Tax information posted dailyto the store’s general ledger at home office

Return Preparation

Sales Tax Compliance21

Return PreparationMonth-End Process

Generates the “Gross Sales Summary”by state, by store

Divisional salesRX salesMembership salesService sales

Sales Tax Compliance22

Return PreparationMonth-End Process

Generates the “Sales Tax Report”by state, by store

Gross salesNon-taxable salesTaxable salesTaxes collected

Sales Tax Compliance23

Example of ComplexitySome states require additional disclosure:

$ XXX,XXXTotal Taxable Amount$ XXX,XXXCost of TPP for use($ XX,XXX) Total Deductions

$ XXX,XXXPrescription Medicines9.$ XXX,XXXService & Installation8.$ XXX,XXXTax-Exempt Grocery sales7.$ XXX,XXXMemberships6.$ XXX,XXXGovernment sales5,$ XXX,XXXGasoline sales4.$ XXX,XXXAgricultural sales3.$ XXX,XXXResale sales2.

$ XXX,XXXTotal sales1.

Sales Tax Compliance24

Complexity of Returns

AR has 146 locals on return

AL requires return by jurisdictionState returnsCounty returnsCity returnsALATAX return

KY, a state we like

Difficulty in correctly reporting to state, city & county:

Sales Tax Compliance25

Complexity of Returns

20th day of the month

25th day of the month

31st day of the month

Assorted return due dates:

Sales Tax Compliance26

Return PaymentsElectronic Funds Transfer (Preferred by Wal-Mart)

ACH credit - transferACH debit – transfer

Checks

Money Orders

Prepayments

Complexity: North Dakota’s May return is due in JuneEven years – due June 22nd

Odd years – due June 30th

Sales Tax Compliance27