- Sales Tax Audit
A sales tax audit is the examination of a company’s financial documents by a U.S. state’s tax agency to verify if they have collected the correct amount of
sales taxfrom their customers.
The purpose of a sales tax audit is to examine the business records of a vendor in order to determine if the appropriate amounts of sales tax revenue have been collected from the customer by the seller and remitted to the vendor’s state. The records reviewed during an audit often include: Sales Tax Returns, Worksheets and Canceled Checks, Federal Income Tax Returns NYS Corporation Tax Returns, General Ledger, General Journal and Closing Entries, Sales Invoices, Exemption Documents Supporting Non-taxable Sales, Charts of Accounts, Fixed Asset Purchases/Sales Invoices, Expense Purchases, Merchandise Purchases, Bank Statements, Canceled Checks and Deposit Slips, Cash Receipts Journal and/or Purchase Journal, Cash Disbursement Journal and/or Purchase Journal, The Corporate Book (Minutes, Board of Directors, Articles of Incorporation),Depreciation Schedules.
Stages of a sales tax audit
A field Sales Tax audit begins when an auditor contacts you, the taxpayer, by letter or phone to schedule a pre-audit meeting.
The initial appointment
At the initial meeting the auditor will explain the audit approach and procedures, describe the audit process, and outline protest rights and appeal procedures in the event of any adverse results. The auditor will prepare work papers comparing transcripts and reconciliations to what was reported on the tax return. These assessments include:
## Sales per books vs. sales tax returns filed
## Bank Deposits vs. sales per books
## Federal sales vs. sales tax returns filed
## Sales tax payable per book vs. sales tax paid
## Fixed assets per FITR and reconciliations to G/L
## Purchases per books vs. Federal income tax return The auditor may choose to conduct a detailed audit, an audit involving a test period method or, in some instances, an audit involving an EDP audit method. Taxpayer’s will be provided a required list of records for the next appointment. Records that are generally requested include:
##Documents supporting book entries: sales invoices, purchase invoices, purchase orders, bank statements, contracts, etc.
##Documents supporting exempt sales: resale certificates, exemption certificates, bills of lading, etc.
##Documents supporting records of business operations: sales journals, income statements, balance sheets, general ledgers, state and federal income tax returns, etc.
The following appointment
At the following appointment the auditor will normally make four different assessments:
##Sales invoices- Cash register tapes and/or invoices will be checked against reported sales tax.
##Sales journals- Sales journals will be checked against sales invoices and reported sales tax.
##Exemption certificates- Your exemption certificates will be checked against invoices.
##Projection of results- After examining your books and records the auditor will project the errors detected within the test period.
If there are no recommended changes, the auditor will send a letter acknowledging this. If there are changes, the auditor will explain the findings and present copies of audit workpapers and schedules. If additional tax, penalties, or interest is due, a “30 Day Letter” (Statement of Proposed Audit Changes) is issued, which details the audit recommendations and gives you thirty days to request review by a tax appeals officer. If you agree with the audit findings, you must sign the statement to acknowledge your consent, and proceed by paying penalties and interest. If you owe money but cannot pay in full at that time, you may be able to make a down payment and work out an installment payment agreement for the rest of the unpaid balance. If you disagree with the audit findings, you should submit additional information to back your disagreement, and return a copy of the Statement of Proposed Audit Changes stating your discrepancies. The auditor will then analyze any additional information submitted and if appropriate send you a revised statement.
Audit appeal process
When the audit field work is completed, the auditor will present you with a copy of the audit work papers. These work papers will include questions that were raised, reporting errors and transactions that were not properly supported with documentation. The auditor will also schedule a meeting with you to review the items listed on the work papers. You will be given time to review the work papers and provide sufficient documentation to resolve any questions or concerns. To be successful in this process, an acute knowledge of the Sales & Use Tax laws is absolutely essential. [ [http://www.salesandusetax.com Sales and use tax audit info, help] SalesAndUseTax.com]
Afterward, the auditor will calculate the Sales Tax on any remaining taxable items and you can pay the additional tax due. If you disagree with his/her findings, there are typically different avenues at the administrative level (e.g., meetings with higher ranking revenue department personnel, conciliation conferences, etc.). Matters left unresolved at the administrative level can proceed to court. Each of the dispute resolution alternatives has unique potential benefits, risks and associated costs. No one alternative is ideal in all scenarios, and selecting the wrong dispute resolution alternative can significantly alter the outcome.
ales tax audit defense
Companies often take a defensive strategy to minimize Sales Tax audit assessments. Although professional representation is not required of a company during an audit, financial professionals who specialize in Sales & Use tax are often employed to ensure the audit runs smoothly.
Sales tax in the United States
* [http://www.salestaxreference.com Links to all state sales/use tax resources]
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