Managing a sales and use tax audit can be challenging. And many businesses mishandle the process, making it all that much more difficult on themselves.
First, you should always anticipate an audit – even if you’ve never been audited before. While they are definitely becoming more frequent as states try to crack down on economic nexus laws, rarely are you given advanced notice as to when an audit will occur. There are several reasons your business may be audited. Three common ones are:
An audit of one of your customers and a review of one of your invoices could result in you being audited.
Your company could be reported by a disgruntled employee.
Good news and press for your business could also put you on the radar for auditors.
Often though, it’s just random bad luck.
But once you’re hit by an audit notice, it’s important to not mishandle the process. An audit doesn’t necessarily mean devastation for your business, even if non-compliance is found.
It’s important to immediately assess your records when an audit notice arrives. You should make every attempt to identify your exposure prior to the audit. Many companies’ documentation is poorly organized and hard for an auditor to interpret. Documentation typically required by an auditor can include invoices, exemption certificates, summary reports, tax returns, and more. Missing documentation complicates an audit and may cause penalties that you may not actually owe. Be sure you have your documentation in order before the auditor shows up.
Always treat the auditor with respect and dignity. Those under audit often react emotionally, but it’s important to keep your cool and realize your actions could sway a decision. It’s also a good idea to assign one person from your company to manage the relationship with the auditor. Employees shouldn’t answer any questions from the auditor unless requested and agreed upon; instead, they should direct the auditor to the assigned point of contact. By ensuring one point of contact, you can ensure the correct data and correspondence is provided.
Know you may have options. Companies also tend to believe they can’t work with the auditor. Choosing to disclose minor errors to the auditor, for example, can potentially allow you to build rapport and show that you’re willing to help the process (which could result in less scrutiny on the rest of your situation). And depending on the situation, you may have room for negotiation before the final assessment.
Sales tax obligations are something to be taken seriously. It’s a complicated process, and it’s easy to make a mistake. When you’re not sure, it may be best to reach out to an expert. By relying on a sales tax expert, you gain years of expertise and experience in managing sales tax and are far less likely to make a costly mistake.
If you’re looking for help in managing an audit or just want to ensure you’re managing your sales tax obligations correctly – reach out. With TaxConnex, sales tax is all on us.
Looking for more tips to ensure you manage sales tax correctly? Download our eBook 6 Common Missteps of Sales Tax Compliance.