If you are a convenience store owner in Alabama, you must be on the lookout for a sales tax auditor. Over the last year, sales tax audits in Alabama have been on the rise.
Common Pitfalls in Alabama Convenience Store Sales Tax Audits
1. Not Keeping Receipts or Z-Tapes for Sales Made to Customers
The failure to keep z-tapes is a leading cause of issues during audits. Without these, auditors will estimate your sales based on your cost of goods purchased for the year or simply review your bank statements.
2. Not Keeping Receipts or Proof of Payment for Purchases
It is crucial to maintain proof of payment for goods purchased for resale. Auditors need to verify whether you have already paid sales tax. For example, if you paid sales tax when purchasing wholesale items from Wal-Mart, you must provide receipts as evidence. A verbal claim is not enough.
3. Not Keeping Track of Spoiled Goods
If you fail to track spoiled goods, auditors will assume 100% of your wholesale purchases were sold. This means all melted chocolate, exploded drinks, and broken bottles will be taxed as though sold.
4. Not Keeping Track of Employee Theft
Employee theft is particularly painful. A dishonest employee not only costs you in wages and lost customers but also leads to tax on the stolen goods. Auditors will levy sales tax on these missing items as if they were sold.
Why These Pitfalls Matter
The four points mentioned above are the most common reasons convenience store owners end up with large tax bills after an audit. These pitfalls represent the bulk of the problems faced by convenience stores around Montgomery, Alabama.
It is absolutely necessary to maintain proper records to protect your business during an audit.
How We Can Help
Call us to learn more about how to protect your business from unexpected sales tax liabilities and how we assist Alabama convenience store owners through the audit process.
Frequently Asked Questions
What are Z-tapes and why are they important in Alabama sales tax audits?
Z-tapes are end-of-day receipts generated by cash registers summarizing total sales. In Alabama, auditors rely on these to verify reported revenue. Without them, auditors may estimate sales using other methods like cost of goods or bank deposits, potentially inflating your tax liability.
Do I need receipts even if I paid sales tax on wholesale purchases?
Yes, keeping receipts is essential, even when sales tax was paid upfront. Auditors need documented proof, not verbal confirmation. If you’re audited and can’t show proof, you may be taxed again on those purchases.
How do spoiled goods affect my sales tax audit?
Spoiled goods, such as damaged or expired inventory, must be tracked and documented. If not, auditors assume all inventory was sold and tax you accordingly, increasing your tax burden unnecessarily.
What role does employee theft play in sales tax assessments?
If inventory disappears due to theft and isn’t properly recorded, auditors assume the items were sold and will charge sales tax on them. Maintaining theft records can help reduce your assessed tax liability.
How can I avoid common audit pitfalls as a convenience store owner in Alabama?
Maintaining complete and accurate records, including sales receipts, purchase proofs, spoilage logs, and theft documentation, is key. These practices safeguard your business from inflated tax bills during an audit.