Sales Tax Audit Overview

How Did I Get Selected for Audit?

Most businesses ask how they got selected in the first place. While some companies get randomly selected, more commonly businesses are targeted for specific reasons.

Targeted Industries: The state often goes after industries suspected of underreporting in what are called campaigns. Cash-based businesses such as bars, restaurants, grocery stores, and liquor stores are prime targets. Industries with complex and confusing sales tax rules are also frequently audited — real property improvement contractors come to mind.

Prior Audits: A company that owed tax after a prior audit is likely to get hit again to see if they cleaned up their act.

Gross Sales: High sales volume, or sales reported to a state that differ from federally reported sales, can be an audit flag.

Exempt Sales: A high volume of exempt sales can signal a collection opportunity for the state.

Exempt Sales Percentage: If your business reports a higher percentage of exempt sales compared to industry averages, you could be next.

Refunds or Credits: Filing a high number of credits on returns or a refund claim dramatically increases audit likelihood.

The Audit Is a Guilty-Until-Proven-Innocent Process

A sales tax audit puts pressure on taxpayers through guilty-until-proven-innocent tactics. Auditors are taught: when in doubt, write it up and make the taxpayer prove otherwise.

Managing and controlling the audit so the auditor does not have the option to write things up is a tactical advantage. If something is written up, you must keep clawing away at the assessment through the appeals and protest process to reduce it.

Why Having the Right Team Matters

Just as you are well versed in managing your business, our business is managing and fighting your audit. Whether you need a sales tax attorney or consultant, Sales Tax Helper matches the service to meet your specific needs.

Some companies opt for a state sales tax law firm, but having a team that is experienced and knows how to play the audit game is often more critical than having an expensive attorney alone. Our team includes both tax audit experts and sales tax attorneys.