Have you been selected for a Sales and Use Tax Audit Examination or does the thought of being selected scare you? Many of the busiSales Tax and Useness owners who come to our office from the Richardson and Plano Texas area, are terrified at the thought of being audited by the state.
As States continue to need to find revenues to meet their budget needs, the need for states to maximize sales tax collections will continue to be important. In Texas, my home state, sales tax revenues for fiscal year 2018, accounted for 57.5 percent of all state revenues. States use sales tax audits as a primary means of insuring compliance. When you are audited, and you most likely will be if you collect sales tax and are in business for any length of time, here are some suggestions on how to handle the audit.
Upon being notified, before digging in, First look at the Big Picture
- Do you know why your company is being audited? Is there a specific reason or is it simply a random audit?
- Was your company audited in the past and were there findings?
- Are you aware of gaps or holes that occurred in processes over the period audited?
- Have you taken positions on sales tax that are in the gray?
- For all of the questions above, if there are issues that you need to be aware of, fix them prior to the auditor’s coming in if you can, but if not be prepared to address them. You do not want the auditor’s findings to be a surprise to you.
- If you don’t have the knowledge and skills internally to navigate the audit process successfully, consider getting help early in the process.
When the Auditors give you a list of items to provide
- Gather your records. You will want a clean audit trail of tax return to the support documentation. The audit trail should be simple to understand and follow for the auditors.
- Do not provide the auditor’s more than what they’ve requested. This puts you at risk of opening up other issues and just making it harder for the auditors to agree to your numbers.
- Review all of the information before it goes to the auditors. It should be simple for them to follow. You want them finished quick!
Other Items to Keep in Mind
- The State may ask you to extend the Statute of Limitations for time they have to finish and collect any taxes due. While in general you don’t want to extend this date, if the date is nearing, unless you are organized and ready to go immediately, it may be in your best interest to grant an extension.
- Reverse Audit – While the auditor’s are auditing to verify that you did not miss taxes due, it may be a great time to audit your own books to verify that you did not overpay.
One the auditors are completed, they will propose an assessment. If you agree, all is well. Pay the liability and move on. However, if you do not agree, don’t be afraid to contest the amount due, explain your position to the state, and file an appeal if you don’t agree. If the auditor's used sampling to make assumptions, verify that their assumptions were accurate. Errors in assumptions can often dramatically affect their findings.
Now is a great time to step back, review what happened, and put into place any changes that will allow you to minimize risk in future audits.
If You Need Help
If you need assistance with a Sales Tax Audit or other tax issues, call us at (972) 821-1991 or email me at email@example.com.
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