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Tax Audit CPA provides Tips on Sales Tax Audits

Sales tax audits are on the rise during the Recession.

Factors that Increase the odds of being selected for a Sales Tax Audit

I think most sales tax audit CPAs agree that random tax audits are rare. The limited resources of the State almost force it to use data mining to select audit candidates.

  • History of non-compliance, like failure to file, late filing, slow paying, etc.
  • Business closure or bankruptcy. Yes, a sales tax audit is still possible after you close the business.
  • Change in sales. Remember your State can easily track your sales over time and compare it to similar businesses.
  • Running a business that deals with cash sales.
  • Not including Use tax. Use tax is sales tax you pay the State, generally, for online purchases from other States.
  • Maintaining a toxic work environment that creates whistle-blowers.

Conversely, participating in a State amnesty or voluntary disclosure program, if available, may prevent a sales tax audit.. Talk to your tax audit CPA first.

Keeping your Sales Tax Audit costs down

  • This first tip may be too late. Tax audit CPAs recommend keeping good records. Assume you’ll be audited eventually. Not only is reconstruction of records costly, it may lead to an undeserved tax bill at the end of the audit.
  • Your State may demand a copy of your accounting or POS software file. It may seem illogical, but this could save sales tax audit expense if your auditor finds no tax avoidance scheme. Consult your sales tax audit CPA first, of course. Don’t be too anxious to offer up the software file. I usually ask for more time so I can check it first. Why? To proactively explain any accounting convention your company uses to the auditor.
  • Work with the auditor to minimize the audit process. Sales tax audits use statistical sampling as it’s not economically feasible to check every transaction. Sometimes your CPA can limit the number of transactions, the type of transactions and the associated time frame the auditor uses.
  • Signing a waiver on the statute of limitations. Consult your sales tax audit CPA on this issue. Sometimes signing it is prudent and can save audit costs.

I’m a sales tax audit CPA. Audit prevention is always best. The next best thing is obeying the State’s sales tax laws, so there is nothing to catch during an audit. But if you are selected for a sales tax audit, consider calling us for a free phone consult at (910) 399-2705.


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