What is Sales Tax Audit Defense?
Exactly what is sales tax audit defense? Why did you just enter that phrase into Google?
Many times, clients call and ask us why they are being audited. Is it because they over- or under-reported their sales, bought too much, or simply made too much money?
The correct answer is – WE WILL NEVER TRULY KNOW.
Common Red Flags for Audits
- Amended Returns:
Amended returns are a major red flag for audit. This happens normally when somebody made an intentional error on their original return and then severely reduced their tax liability months after receiving a notice from the State showing a tax liability for previously filed sales tax returns. - Industry Standards:
Sometimes, industry standards are also used for determining your revenue. It doesn’t sound fair, but that is also a measure of how much you should have made in sales using credit card, cash, or checks.
In essence, if the store down the street from you has cash sales the equivalent of 5% for their gross receipts, then, the auditor will wonder why you only report 4% of cash sales – even if that truly is the case.
Why You Need Audit Defense
Purpose of Audit Defense
So, back to audit defense – what is it and why you need it. Audit defense is a service that we offer to ensure that our taxpayer client is not getting the short end of the stick by the auditor.
That means:
- The auditor is not incorrectly interpreting information.
- Incorrect liabilities are not written up in conjunction with penalties and interest.
You always have appeal rights, but there are just that many more errors to fix. During audits, we have seen clients sign away their rights in terms of agreeing to things that they should not have agreed with. This will also become another hurdle to appeal.
What Audit Defense Is NOT
Audit Defense IS NOT A WAY TO HIDE YOUR BOOKS AND RECORDS.
Unfortunately, some people think that when you hire a tax attorney, you no longer need to show your books and records. That is absolutely not the case.
If you do not have all of your books and records, we will manage the audit and fill the gaps as best as possible. However, not producing documents will end in poor results.
Final Thoughts
I hope to have shed light on the Sales Tax Audit Defense procedure.
Call us to discuss your audit and/or appeal.
Frequently Asked Questions
What is sales tax audit defense?
Sales tax audit defense is a service that supports taxpayers during a state-initiated sales tax audit. It ensures the auditor does not misinterpret financial data, improperly assess liabilities, or infringe on your appeal rights.
Why would I get audited for sales tax?
Sales tax audits can be triggered for a variety of reasons, including amended returns, discrepancies from industry norms, or other unexplained reporting patterns. However, the exact reason is often unclear and not disclosed.
What are common red flags that might trigger a sales tax audit?
Common red flags include filing amended returns that significantly lower tax liability and reporting sales figures that deviate from industry standards, such as a lower percentage of cash sales compared to similar businesses.
Can audit defense help if I don’t have all my records?
Yes, audit defense can help manage the process and mitigate issues even if you don’t have complete records. However, not producing books and documentation may result in unfavorable audit outcomes.
Is audit defense a way to avoid showing financial records?
No, audit defense does not mean you can hide or avoid sharing financial records. Transparency is essential, and a defense team works within the rules to protect your interests not to conceal information.