Overview of Sales Tax Audit Concerns
If you sell both high and low tax items, then, under a sales tax audit, the auditor will pay close attention to the amount that you are selling of each.
If you have a grocery store with very few low-tax items, the auditor may gross up your high tax sales to the industrial norm.
Transcript
Q&A with Mehir P from Hoover, AL
Question: Why is my auditor making a big deal over high and low tax items?
Thanks for your question, Mehir. From my understanding, you probably have some type of a convenience store or a gas convenience store inside of a gas station in Hoover, AL, and you’re being audited for sales tax.
Auditor’s Objective
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Determine whether you paid the correct sales tax on all items sold
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Understand the difference between high tax and low tax items and its implications
High Tax vs. Low Tax Items
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Retail Items (High Tax):
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Chocolate bars
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Chips
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Cans of coke
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Grocery Items (Low Tax):
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Lettuce
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Items typically found in a fresh market
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Why the Ratio Matters
Auditors compare your sales to the “industrial norm.”
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If you have a straight convenience store, it’s unusual for 90% of your items to be taxed as low-tax items
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A store mostly selling retail goods should reflect majority high-tax items
Industrial Norm Example
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In a fresh market, 90%+ of items might reasonably be low tax
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In a convenience store, the norm would be:
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90–95% high tax
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5–10% low tax
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If the auditor sees a 50/50 split between high and low tax items in your sales report, but the industrial norm expects 92% high tax, they will gross up your high-tax sales by 40% to meet expectations
Final Note
If it looks like you’re missing a certain percentage of high tax items, the auditor may adjust your records accordingly
If you have more questions, feel free to keep posting them. We’re here to help!