Sales and Use Tax Audit Advice
Our experience has shown sales and use tax isn't at the forefront of most businesses' minds until they receive an audit notification. The good news is that it is okay. There are plenty of professionals like us here to help. In the event you are just looking for some advice and not looking for representation, here are some pointers:
1. Do a quick review of your activity in the state. Identify your gross sales as well as your taxable sales in the state. If you have a large portion of non-taxable sales, make sure your documentation is in order (contracts, certificates, or applicable shipping documentation)
2. Understand the tax application to your business because not all states have the same approach to sales and use tax. This is especially important for software, manufacturing, and construction industries.
3. Be friendly to the auditor. Most auditors are just there to understand the facts of your business and ensure your company is operating within the state's tax laws. More often than not, they are just doing their job and don't feel one way or another about you or your business. State employees aren't making a commission on your audit results. Being friendly does not equate to being overly talkative about your business.
4. Answer the questions asked and do not divulge additional information unless it is absolutely crucial to the conversation. Auditors are tasked with auditing several companies at the same, often not within the same industry. Overwhelming them with information about your business will likely cause confusion rather than clarity.
5. Review the auditor's requests and limit the data provided to pertinent information. You don't want to risk having an unnecessary and overwhelming population as part of a sample if you can avoid it. Most audits have errors because mistakes happen. Projecting those errors out over a significantly larger than necessary population base can lead to inaccurate, costly assessments.
6. See if you have overpaid on sales tax to vendors in error. Auditors are looking to see where you have underpaid and they'll inadvertently turn the blind eye where credits are due. If you have paid sales tax in error, then you are entitled to it.
7. Don't miss deadlines. As a general rule, this is a good one to keep. Meeting the auditor's deadlines will help you build a good rapport. It shows that you respect their time and schedule. If you are going to miss the deadline set forth by the auditor for providing documentation, then it is best to give them a heads up as a courtesy. Chances are they'll give you an extension and/or reschedule their visit. Other deadlines such as redetermination requests, hearings requests, or audit submission deadlines are less negotiable (or not at all). These can result in additional penalties, interest, liens, and more.
8. When entering into agreements or signing anything it is imperative to know what concessions you are making. Understand the power of that signature. In some cases, you may be agreeing to extend the time necessary to review documentation. In other cases, you may be relinquishing your right to refund if errors may exist within the audit findings.
9. Don't incriminate yourself. Let the auditor find the errors and don't point them out yourself. You aren't building a reputation of honesty, you are letting the auditor know your business is prone to mistakes.
10. If you have any questions, then contact us. We would love to help you navigate your sales and use tax audit.