Top Tips for Managing a Sales Tax Audit

Managing a sales and use tax audit can be a challenging process. There are steps you can take to try and avoid an audit, but once the notice lands on your desk, there is no going back. However, there are options available to influence the outcome of the audit. Here are some top tips for successfully managing your sales tax audit.  

*Please note that this is an abbreviated version of our eBook, Top 10 Tips for Managing Sales Tax Audits. For the full version, please download the eBook here. 

1. Expect an Audit – There are several reasons your business may be audited. It could be based on your industry. It could be a result of one of your customers being audited, an invoice being reviewed, and the trail of breadcrumbs leading back to you. Another possibility is being reported by a disgruntled employee. And sometimes audits purely happen by chance. 

2. Maintain Compliance Documentation – Any documentation should be well-organized and easy to interpret by an auditor. Missing documentation complicates an audit and may cause penalties that you may not actually owe. Documentation typically required by an auditor can include invoices, exemption certificates, summary reports, returns, and more.  

3. Assess your records – It’s important to assess your own records after being notified of an audit. You should make every attempt to identify your exposure prior to the audit. By doing this, you may uncover problems during specific periods that you would want to avoid during sampling.  

4. Manage the Relationship – Always treat the auditor with respect and dignity. It’s also a good idea to assign one person from your company to manage the relationship with the auditor. That person will essentially be the auditor’s point of contact, which can reduce confusion and miscommunication. Employees shouldn’t answer any questions from the auditor; instead, they should direct the auditor to the assigned point of contact.  

5. Disclose Insignificant Items Proactively – By choosing to disclose errors to the auditor, it allows you to build some rapport and show that you are willing to help the process. This could result in less scrutiny when reviewing the rest of your situation.  

6. Negotiate the Findings – Work with the auditor to understand their thought process and decisions. Depending on the situation, there may be room for negotiation before the final assessment. As mentioned before, maintain a good relationship with the auditor in case of future audits.  

Sales tax audits can represent a significant distraction to your business. Pulling paperwork for the auditor, managing the audit, answering the auditor’s questions, and negotiating an outcome can be time-consuming at best and risky at worst. Utilizing a trusted tax expert to help you through this process can alleviate the burden. TaxConnex offers audit defense and support and can act as an intermediary between you and the auditor in the situation you become audited. Contact us to learn more.