Professional Services

Sales Tax Audit

Matters of sales tax should be taken seriously. This is especially important because if sales taxes are collected and not paid over, business owners can be held personally liable for unremitted sales tax and the State can close the business. In addition, sales audits that show unreported sales tax can lead to the conclusion that sales were underreported on the business's "income tax" return.


What Is a Sales Tax Audit

As a business owner, you are obligated to collect sales tax and pay it to the state. In many states for sales tax collected you must file and remit the collected sales taxes on a monthly basis. If the state believes you were delinquent in filing sales tax returns or that there were discrepancies between your business practices and tax returns, it may conduct a sales tax audit to determine the correct amount of tax actually collected or under collected and whether sales taxes were properly reported.

The following are considered violations of sales tax law:

  • Failure to collect state sales tax
  • Failure to properly report sales taxes
  • Underreporting of state sales tax
  • Failure to file sales tax return

States use a variety of techniques depending upon the type of business under audit. Regardless of the type of business under audit, the sales tax examiner will compare the totals sales tax recorded on the taxpayer's books to the total sales reported on taxpayer's sales tax return and compare the total sales recorded on the taxpayer's books to the total sales on the taxpayer's income tax returns.

Records generally requested may include:

  • Books of account including taxpayer's income statements, balance sheets, general ledgers, and other summary records of the business operations including state and federal income tax returns;
  • Original documents that support the entries to the taxpayer's books such as sales and purchase invoices, purchase orders, contracts, bank statements, and any other documents that result from the business operation.
  • Resale certificates, exemption certificates, bills of lading, or other documents supporting any claimed exempt sales.
  • Copies of the sales tax return filed with the state and the working papers and schedules used to prepare the sales tax returns.

Why Attorney Representation Is Needed For a Sales Tax Audit

  • A sales tax audit is very complicated and knowledge of sales tax law and regulations and an understanding of the state tax agency auditing procedures are essential for a successful defense. Sales tax audits are much more complicated than an income tax audit.
  • An unsuccessful audit can lead to examination of income tax returns. Professional representation can limit the scope of audit.
  • Expertise, knowledge, and experience allow for a more aggressive defense of the audit and minimize adjustments in sales tax liability and penalties.
  • The attorney becomes the point of contact thus avoiding damaging disclosures to the examiner.

Call us to aggressively and effectively defend your rights in a sales tax audit.

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