Sales Tax Audit Tips
If you don’t have a sales and use tax expert representing you during an audit, they will ratchet up their aggressiveness by scheduling things that a novice may not realize are non-taxable or don’t know what to cite to have them removed.
A corollary - the “throw everything at the wall and see what sticks” methodology of auditing.
State auditors do not have the business’ best interest at heart while conducting sales tax audits.
If an auditor has identified zero refunds or credits going in favor of your business, be very suspicious.
If your audit ends with an assessment above a certain threshold (which varies by state), your business will automatically be flagged for a subsequent audit 2-3 years in the future. If your audits ends with the state writing your business a refund check, you may never be flagged for another sales tax audit.
Refunds can be included even if you previously agreed to a sampling plan. There are opportunities to review purchases within the sample. Alternatively, if you can demonstrate that certain refund transactions were outside the scope of the sample they can be included.
Projection/sampling means that a small reduction in the liabilities within the sample can have a profound impact on the final audit assessment amount. Don’t think that “nibbling around the edges” isn’t worthwhile.
