Michele Bermingham is an analyst is a member of the Azavar Government Solutions team, which focuses on maximizing tax revenue for local governments in Illinois and in other states. Michele specializes in sales tax reviews and food and beverage tax audits, also known as “Places for Eating”.
In this interview, we learn about sales tax audits and how many municipalities are changing the way they approach locally administered taxes such as food and beverage. We also discuss the importance of having a data-driven focus for local governments and steps local leaders can take to improve the efficiency of their tax revenues that are being collected.
Question: Is it safe to say that pretty much every municipality is affected sales tax and food and beverage taxes?
Answer: Absolutely for sales tax, however, not everyone has food and beverage. Municipalities are starting to implement food and beverage, “Places for Eating” tax because it is a tax that’s locally administered. They can control it and it can be an additional source of revenue for them without the State of Illinois being a pass-through.
Question: When you work with the municipality, how much do you need to explain to the municipality at the outset?
Answer: Luckily, we have a really great team here at Azavar. We have an established process where we have Erin Marshall, who conducts the kick-off with our clients, helping to get all the information we need from them and answering their questions.
Initially, when I’m talking with a client about sales tax, I’m reaching out to them so that I can have them source the data that we need from the Illinois Department of Revenue (IDOR). There’s some address data that we need for them to access so that we can load that address information into our proprietary software for analysis.
Question: How difficult can it be to source that data for the municipality?
Answer: It’s definitely information that every municipality is entitled to. It’s called the Annual Taxpayer Location Address List. Every municipality can request it and they do get a copy of it in a printed form once a year.
I wish that we could request that on behalf of our client and help automate that process. But as of this time, the client still must request it, because IDOR would not honor Azavar asking for that information on the municipality’s behalf.
Question: Do they provide the Annual Taxpayer Location Address List in a digital format as well?
Answer: You have to request it. When our clients request it, it arrives in a text file format on a CD-ROM and we have created proprietary software to upload that information as is and read it effectively and efficiently.
However, a lot of our clients have never asked for the information that way and they’re just used to receiving it once a year, printed on dozens and dozens of pages. It’s really a messy format that’s not easily analyzed.
Question: On the food and beverage side, what are the steps required to get that type of data from the municipality?
Answer: Our clients that already have this tax know who is filling up the forms and making payments every month. We’re then able to get from our client a list of current remitters.
We then take that list and compare it against an alternative source, maybe like a health department list or some other accounting of restaurants or places that sell liquor and things like that. We’re looking at taxpayers to see if there’s anyone who’s not remitting the tax that is making sales with prepared food and beverage in their jurisdiction.
Question: It seems like if you’re working with a larger municipality, this could be a massive amount of data. What do you tell a client in terms of time frame to parse through all this information and start trying to identify them?
Answer: Some of our utility audits can take longer. But the good thing about sales tax is I’m usually able to immediately begin communicating with the client and once we get the data, I can jump right on that review. Usually with food and beverage and sales tax I’m able to complete it within a month or two.
Question: Let’s take a quick step back here to get your background. How did you get into becoming an analyst? What were the steps that got you to where you are with Azavar?
Answer: Previously, I was in Cincinnati for several years and I worked for a textile company as a business analyst. My main role had to do with reporting and analysis for a large whole database of information. I was very much a data-oriented person with a lot of reporting and a lot of Excel use.
When I came to relocate in Chicago, I sought Azavar’s job posting for an analyst. Since this is the municipal environment, I did have some initial learning to do. I still learn new things all the time, just because it’s a different industry. But at the heart of it all, you’re still working with the data you have available, to really dig into it and find useful things to communicate to your client, find errors, get them resolved.
Question: With the importance of data-driven focus for local governments, are you starting to see more local municipalities that are looking assistance to better manage their data?
Answer: Absolutely. I’ve had specific requests from clients, where they had a particular hunch or a certain understanding, and they have the data, they just necessarily don’t know how to do the analysis themselves. I’ve done some analysis on their behalf, looking at food and beverage revenues that they have coming in at specific businesses, trying to identify any odd trends or things that we might want to look into. People definitely have the data, they know that they want to look into certain oddities or curiosities. It’s just a matter of finding the right professional that has the skills that can do that analysis.
Question: What do you think your key strengths are as an analyst?
Answer: I think being a curious person is important when it comes into doing this work. When you’re in auditing, no one’s going to tell you the who, what, where, when and why of it. It’s something that you have to be driven to discover yourself and to really put together the total picture of what’s occurring.
It also has been helpful to have a strong background in Excel. I definitely think that’s been helpful to do internal analysis here like revenue forecasts and different things like that.
And you also have to enjoy working with different types of clients, helping them understand what we’re looking to accomplish. I help our clients in many areas, including whether they have concerns about licensing compliance or revenue reporting, or special business districts or compliance issues.
Lastly, I’d say it’s very important to be patient and to have perseverance in this type of work. There are a lot of restrictions sometimes.
Maybe you won’t have all the data available or maybe there’s restrictions on time and resources. In sales tax, we have to work with the Department of Revenue, there can be a long queue after you do all the work. You want to show somebody what needs to be fixed and you want it fixed immediately, but quite often there can be delays with the Department of Revenue. So, you definitely have to be patient.
Question: How have changes in technology affected the work that you do with clients to parse through data to find opportunities?
Answer: I think access to information is really important for us. It’s never been as automated and instantaneous as it is now. A lot of times we need to access county assessor information, treasurer tax portals and various GIS data mapping tools. Therefore, it’s important that we’re able to get to those authorities and to their databases so that we have the source answers on taxing jurisdiction.
Recently one of our team members introduced us to 3D mapping tools in Excel, which I think has been a really great asset for us. We’re able to look into corner analysis and identify possible duplicate addresses.
Question: Are there any consistent lessons that you’ve seen over the time that you’ve been with Azavar?
Answer: I think initial preparation is a key. You would naturally think that working with address information is already very structured. However, when you have data from multiple sources and providers, you have fields that are just running string text with no delineators.
You have to be able to go in there and put it into a more structured context so it can work in your system. If you don’t have good, structured, address information formatted going in, it’s not going to be that clean on that back side. Therefore, it’s vitally important to take your time handling that initial large subset of data so that you can maximize the use of the software you put it into.
Question: Can you give an example of a complexity or a prevalent issue that you may run in to in your realms of expertise?
Answer: When it comes to sales tax, everyone knows it’s very complex but it’s also large source of our clients’ revenues. In Illinois, there are over 7,000 local governments and each of them can levy their own sales tax if they are home-rule or ask their constituents vis referendum if they are not.
There are many different things going on with sales tax. You can have items that are taxed at different rates, special taxing districts, etc. In addition to retail, you can have online sales and e-commerce, including people selling online from state-to-state.
In sales tax, it’s important to do your analysis and always be open to revising it. That’s why we tell clients we can’t promise them we’re going to find anything, but when we look, you’ll never know what you’re going to find.
For example, there could be a corner gas station that should be remitting to you but you haven’t received any revenue for it since it opened 10 years ago because it’s incorrectly coded. Or with food and beverage, you might have a restaurant that has been local to the community for a while but you’ve had a new tax implemented, but the restaurant never started collecting and remitting that tax.
Question: If you can make a prediction, what would you see as far as in your realm of expertise for the next five years.
Answer: For sales tax, I would hope that Illinois would take the steps to broaden and expand our sales tax base. Illinois has one of the narrowest sales tax bases in United States. Even the governor has said that it’s not competitive and we’re not taking advantage of the growing service economies. I know it was discussed in conversations for the budget but they didn’t take any action on it. However, maybe in the future, we’ll see Illinois sales tax on things like laundry services, or auto repair, getting your hair or nails done.
There was a change in the new Illinois budget where IDOR is now going to collect 2% fee on local sales tax collection service that they provide. Since they’re basically skimming 2% of the local sales tax from local government municipalities might opt to push to administer and control their own sales taxes again.
