During a sales tax audit, presenting the correct invoices in the correct form is of utmost importance. You need to break out the sales tax and other non taxable charges on the invoice. If you lump everything together, then, you will be charged taxes on the gross receipt.
Transcript
Hi, my name is Mansoor Ansari and we’re back for another video. So today we’re going to discuss the crux of a sales tax audit which is your invoices. Now this is how you invoice your customers. So watch this. Let’s call this invoice A. Okay, invoice A is that you just sold a chair — you sold a chair for a hundred bucks. Okay? Now, you did delivery on that chair for fifty dollars. Okay, and then you charge tax worth ten dollars. Okay, let’s just assume the tax is correct in whichever jurisdiction we are in right now. So this is a total of 160 dollars. Okay, this is an example of a really good invoice that you can give to your clients because you have the chair that was sold, which is a tangible item, you have the delivery fee of $50, and you have the tax broken out. Let’s assume somebody just said this invoice is only worth 160 bucks. The problem with that is under a sales tax audit, you get penalized for tax on top of the 160 dollars. In a transaction like this, this delivery fee isn’t even taxable. You know why? Because I broke it out separately, and you used a third-party carrier to do it. It’s not like you got your brother to go deliver the chair for you. Okay, so anytime you’re looking at invoices, you’ve got to set them up correctly, otherwise the auditor is going to assume that things like delivery are taxable and things like tax are going to be double taxed. Thanks.
