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Dealing with sales and use tax audits

Help with sales and use tax audits

Sales and use tax audits come unexpectedly; no one ever asks to be audited. So if you unexpectedly get notified of a sales tax audit, you may not be expecting it or think that you have any reason to be audited.

Many questions may be running through your mind right now, plaguing you with different thoughts about your company’s tax compliance record and the possibility that you might be in trouble with the IRS and state taxation authorities. Don’t worry, we’re here to provide you with the knowledge and the help that you need.

Companies are not often audited by the state for sales and use tax purposes, so you may not have received an audit before.

Even though sales tax audit procedures may seem simple, as you may think all they need from you are lists and records to be reviewed, it is actually more complex and may involve more intricacies than that. Furthermore, handling a sales tax audit requires the right knowledge.

Facing a sales tax auditor alone is not be advisable. It can lead you to overlook certain important details and fall into traps that would, otherwise, have been avoidable. You need sales tax audit help.

What will they look for in sales tax audit?

Sales and use tax audit procedures may be overwhelming sometimes. Common things state tax auditors seem to find during sales tax audits are:

  1. Missing exemption certificates for untaxed sales: If another vendor buys a product from you to resell, they should give you a resale certificate which is proof that you do not need to pay tax on that sale. Ensure that you collect the resale certificate and it is filed by the vendor correctly with everything the state requires. Their signature and your signature should also be on it. This is a huge factor to consider when dealing with sales and use tax audits.

Be sure to double-check and confirm that the buyer is actually a reseller and not just an individual trying to scam the system.

  1. Incorrectly taxed sales to non-profits: These are sales made to nonprofit organizations that the seller believed to be tax-exempt but were not. Some nonprofits are tax-free but some are not. It depends on the state and the unique organization. For instance, a hospital may be tax-exempt but a nonprofit organization against domestic violence may not.

Don’t assume that an organization is tax-exempt just because it is non-profit. And if you are handed a resale certificate claiming to be tax-exempt, double-check with your state to be sure that the organization falls under that category.

  1. No sales tax on shipping charges: This is huge for e-commerce sellers. About half of all the states require state tax on shipping charges.


  • What triggers a sales tax audit?

A sales tax audit can be a random or just routine audit by the IRS. But they can also be signs of something serious. A few things have been found to trigger a sales tax audit and they include: discrepancies in ssales and use tax filings, shutting a location, stopping all Operations, Dissolving a Business or Declaring Bankruptcy, previous sales and Use Tax Audit Liabilities, and more.

  • What do sales tax auditors look for?

Tax auditors look for discrepancies and errors like no sales tax on shipping charges, incorrectly taxed sales to non-profits, and missing exemption certificates for untaxed sales during Sales and use tax audits.

  • What should you expect from a sales tax audit?

Sales and use tax audits can be a good thing as well. It can help you identify areas where you have overpaid taxes so that you may be able to claim your refund. When you get notified of a use tax audit, expect the sales tax auditor to look through your company transactions with a focus on liabilities on existing transactions.

  • What happens if you fail a sales tax audit?

If you deliberately refuse to remain tax-compliant, keep proper records, or corporate with your sales tax auditor, you can have criminal charges filed against you. This can lead to jail time, fines, and other penalties.

Have a tax question? Call us at  888-585-8629 or 617-430-4674 for advice. 

Internet subscribers, users, and online readers are advised not to act upon this information without seeking the service of a professional accountant. Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties, of any kind, under U.S. federal tax laws.