Audits

Managing Sales Tax Auditors

You have received the audit notice. You have dealt with the pre-audit issues — checked the statute of limitations, organized your documentation, and not waived your grace period. Now the auditor is ready to begin. Here is how to manage the process.

One Critical Warning

Above all: collecting sales tax and not remitting it to the state is a crime. Under no circumstances should you accidentally turn over documentation to the auditor that shows you collected but never remitted sales tax. We have handled hundreds of cases where a prior representative accidentally provided exactly that documentation. Do not make that mistake.

The Site Tour

Most auditors will request a site visit. In most states, they are entitled to tour the business location — but that does not mean discussing the audit with employees or reviewing your sales tax files. It means a walkthrough to understand what your business does.

A seasoned sales tax professional knows how to get the auditor in and out in under a half-hour without leaving with more information than they are entitled to. Allowing them to speak freely with employees or access irrelevant files only creates problems.

Where the Audit Should Happen

We strongly recommend that the audit NOT take place at your business. Provide documentation electronically, or have the auditor work at your professional representative office.

Having an auditor on-site at the business for an open-ended period has caused nightmares for businesses. They can ask uninformed employees questions, access irrelevant areas, and — given enough time — find issues to inflate the assessment. We have caught auditors trying to look through filing cabinets we specifically told them were off-limits.

When to Disagree with the Auditor

Inevitably, issues will arise. Many sales tax attorneys believe they must fight every issue. The reality: if an issue is documentation-based — whether you have proper exemption certificates — it is worth presenting to the auditor. For legal issues about whether a transaction is taxable, state your position respectfully, once, and move on.

Auditors are instructed that if it is legally grey, write it up and let the taxpayer fight it on protest. Debating legal issues with an auditor who has no authority to decide them is a waste of time.

To Sign or Not to Sign

Would you sign an agreement to buy a house without understanding the implications? Shockingly, many intelligent business owners sign sales tax audit agreements without understanding what they are agreeing to — and it can cost tens or hundreds of thousands of dollars.

Sampling agreements, statute of limitations extensions, audit outcome agreements — virtually all of these documents are drafted to benefit the state, not you. The auditor will generally proceed the same way whether you sign or not.

When in doubt: do not sign.

← Back to Resources