How to Prepare for a Sales Tax Audit

Will's Whiteboard

Tips for surviving a sales tax audit.


Hi. Welcome to Will's Whiteboard. I'm Will. Today we are going to talk about how best to handle a sales and use tax audit when you get a notice that your business is going to be audited. There are some things that you can do to make this process as painless as possible. And it turns out that there are some keys differences and similarities with blind dates and sales tax audits that explain this.

Okay, maybe you have had this experience. Someone sets you up on a blind date that you just don't want to go on. You meet the person, you're not clicking. You want it to be over as soon as possible, and you definitely don't want a second date with this person. What should you do in terms of making a first impression in this scenario? You don't want to make a good first impression. You want to maybe not dress up as nicely. Maybe you stink a little bit because you don't want to leave the person wanting your company more.

In a sales tax audit it's kind of the opposite. A former California state auditor said, "Look, auditors go from business to business to business auditing for sales and use tax." First impressions matter. If you show up in a courteous smile and professional, you will set a good tone for the entire audit duration.

Next tip is about information. If you are on a blind date, you are not clicking with this person or even in general you don't want to give out personal information as a general rule. Keep it close to the vest unless you're with someone you trust, right? Unfortunately, you can't do that in an audit. You are legally bound to give certain information to the auditor or auditors if they ask for it. Here is the tip though. When they ask for something, give it to them quickly and make sure your records are easy for them to access because you don't want to seem like you're hiding anything. This makes auditors dig deeper and try and find discrepancies and errors just a little bit harder.

But the flip side of that is you don't want to overshare. Don't give them records they don't ask for. Don't put people in the room with them who might make off-handed comments that would spark something and make them dig a little deeper.

Third tip, all about location. So if you are going to go on a blind date and you really don't, you know, want to connect with this person and you think it's not going to go well, try taking them somewhere with a dollar menu, maybe with some golden arches, nowhere fancy.

On the other hand with an audit, you don't want to put the auditor somewhere gross or bad where it is hard for them to work. The same former California state auditor told me that he has been in crazy places for audits. People have put him, for example, on a couch with a Great Dane that would loom over him and drool all over the paperwork as he was trying to get the audit done.

He has also had to do an audit in a van on the curbside in southern California in summer. These conditions put auditors in a bad mood, and they will take their time and will go the extra mile to try and find errors. So put them in a good location, well lit, easy for them to do their work. Put them at ease and in a good mood and it will be as painless as possible.

I hope these tips help you should you find yourself facing an auditor in a sales tax audit, or should you find yourself on a blind date that you want to get out of quickly.

Thanks very much. I'll see you next time.