Update, 11.08.13: Recent sales tax changes have put certain businesses at a higher risk of sales tax audits. For instance, California is hiring 100 auditors, lawyers and specialists to help collect online sales tax, after passing its new Internet sales tax law.
In addition to the tips below, business should pay special attention to where they have nexus, or the obligation to collect and remit sales tax. If your business has nexus in a state, and you do not collect tax there, auditors from that state can levy penalties and interests against you for the delinquent taxes.
The sales and use tax audit could possibly be one of the biggest challenge that your business will face. If you have been selected for an audit, you are now tasked with proving that you remitted the correct amount of sales tax to your state Department of Revenue (DOR) agency. You can start to feel confident about your pending sales tax audit if you have prepared your documents properly. The following tips will help you better prepare for the dreaded sales tax audit.
Organize your records: You may have remitted more to your state DOR agency and the auditor will evaluate the validity and accuracy of the amount. The auditor will require you to show your sales tax returns, excise tax returns, documentation for use tax, retail sales tax, business and occupational tax and all critical records related to your business. Your sales transactions will also be evaluated, so keep efficient documentation to support your individual transactions and be sure they are readily accessible to the auditor. If you don’t currently have an efficient way to store and retrieve records, consider a sales tax software solution that will automate the process for you.
Don’t rush the audit process: Sales tax audits can be tedious and time-consuming. The auditor will conduct a thorough audit and detailed examination of your sales records. Be sure your transactions are documented properly so that you avoid wasting your time and that of the auditor. If applicable, don’t forget to have your cash register tapes ready and/or your exemption certificates for the audit. DOR authorities have become aware of the untapped sales tax revenue available, so they are closely scrutinizing businesses that have not been managing their customers’ and/or vendors’ sales tax exemption certificates.
Consult the services of a professional: It is hard to imagine a more tedious, costly and non-productive process than the sales and use tax audit. And depending on your confidence level of the audit process and the documentation you keep, you may want to seek the advice and services of a sales tax audit expert who has knowledge in computing sales tax rates and organizing paperwork for tax audits. The consultant would organize all necessary documents to facilitate your sales tax audit and have it done quickly and efficiently. You would also have guidance about any pending problems concerning your audit.
Hopefully these tips will allow you to feel more confident about your sales tax audit. If you have prepared your documents properly, take the necessary time needed in the audit, and consult a sales tax expert, you will be more prepared when the auditor comes knocking.