Sales tax audit checklist

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Be prepared when the tax auditor comes knocking

Did you know the average cost of an audit is more than $14,000*? A leading factor in high assessments is missing, invalid or expired sales tax exemption certificates.

How many certificates do you have on file? Where are they stored (paper or digital)? How much exposure do you have in each state? If you have trouble answering these questions, it’s very likely that a lack of organizational procedures is to blame.

If those aren’t big issues for your company, it simply might be a matter of having far more invalid and expired certificates than anyone realizes.

Evaluate your current status with our sales tax audit checklist and learn tips to reduce your audit liability. With this checklist, you will be audit-ready the next time the auditor comes around. Of course, any checklist is only as useful as it is completed so be sure to carve out time to organize your financial documents and work through the list line by line. When it comes to a tax audit, remember that preparation is key.

* This data is based on a survey of 400 U.S. finance and accounting professionals across several industries ranging from ecommerce to retail to manufacturing

A sales tax audit preparation checklist

When it comes to preparing for a sales and use tax audit, few aspects are as problematic as managing sales tax exemption certificates for numerous states. Evaluate your current status with our audit preparation checklist and learn tips to reduce your audit liability.

TopicAction to take
Educate EmployeesEnsure everyone who interacts with customers—from credit departments to sales associates—understands when an exemption certificate is needed. 
Build a LibraryIdentify the correct certificates for each state and type of sale, then make them readily available at each point of transaction. 
Record Expiration DatesMaintain detailed records on how long certificates remain valid in each state and note when they’ll need to be renewed.
Inventory Your StockpileInventory your existing exemption certificates so you can begin to organize, categorize and update as needed.
Catalog Valid CertificatesIndex all exemption certificates that are up-to-date and fully verified so you can easily locate the ones requested by an auditor.
Extract IncompletesExtract certificates that are missing data, such as an overlooked field or forgotten signature, to follow up with customers and complete their records.
Follow UpCreate letter templates, calendar alerts and automated emails that make it easy to follow up when certificates are about to expire or need updating.
Plan AheadDecide how you will update and maintain records in the future. The more you can automate, the easier it will become over time. 
Systematize Your Collections ProcessDevelop a system that makes it easy to quickly search and extract records—both for your company and for an auditor.

Additional tips to reduce sales tax audit liability

Using a checklist to make sure your company is managing sales tax exemption certificates correctly will help. Here are a four additional tips you can apply to your business every day.

1. Keep all sales tax exemption certificates current

Exemption certificate requirements vary from state to state and can change often. Have a system in place to regularly check for new laws and ensure you’re providing customers with the most up-to-date certificates. Get the most current state forms here:

2. Stay ahead of expiring exemption certificates

Give customers ample time to submit new certificates before existing ones expire. This will help reduce your liability for uncollected sales tax and show an auditor you’ve made a good faith effort to play by the rules.

3. Focus on the point of sale (POS)

Make it easy for customers to provide exemption certificates at the POS. This will save you from the future headache of tracking down missing certificates months or years later, which becomes problematic when a customer has gone out of business or is otherwise impossible to contact.

4. Integrate channels

Make it easy to submit valid certificates by giving customers a seamless experience—provide the same exemption certificate submission options in-store and online.

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