I Am Under a Sales Tax Audit – Tax Attorney Atlanta Georgia
The Ansari Tax Law firm is comprised of attorneys of counsel with strong accounting backgrounds, Masters in Tax Law, and a dedicated focus to get our clients out of trouble with the Tax Authorities. Our law firm represents clients and businesses being audited by the IRS and the Georgia Department of Revenue.
What Do They Mean by Sampling in a Sales Tax Audit?
Sampling?
Does it make any sense at all that the Auditor would audit your sales, then, when it came time to look through all of your books and records, that they would only pick 1-3 months out of a given year and then estimate the sales and profits for the entire year?
If you think this is an entirely unfair and incompetent method, you are right. If you think this is fair, then, you are probably an auditor for the State and enjoy getting paid for doing at best half your job.
Examples of How Sampling Determines Your Sales Tax Liability
Sampling for Gross Revenue
Sampling to determine gross revenue works like this:
The auditor takes your gross sales for January, June, and September, for a given year. They will add up the three months and then take an average sale. For example:
January: $20,000.00
June: $2,000.00
September: $2,000.00
Average Sale: $8,000.00
Do you notice the problem here?
Our client in the example above is poised to make gross revenues of $96,000.00 in sales. Assuming the sales tax rate is 10.25%, their sales tax collection will be determined to be $9,840.00. When the auditor takes the average sales figure, then applies the sales tax rate for your county, you are left with the balance owed per the Auditor. Obviously, penalties and interest will apply to the difference in what you collected versus the Auditor’s findings.
Estimating Prices
Estimating your prices is even more ridiculous. It works like this:
The auditor looks to similar stores just like yours in your area, and there is no clear indication of what the “area” encompasses. However, they compare prices at other businesses and suggest that you should be selling the items at the same price.
This does not take into account your clientele, sales, specials, giveaways – do you get the picture? However, the auditor will use these prices and profit margins of other businesses and compare them to yours. If you sell for less, then the difference in estimated profits will be used to determine the difference in sales tax.
Estimating Cash Sales
I intentionally saved the best for last.
If all of your sales are on debit or credit card, then, you are out of luck. The Auditor will compare the amount of cash sales of similarly situated businesses to your cash sales. If they determine that the number of cash sales in the area is 5%, then you have now lied to the auditor, as you are considered to be hiding an extra 5% of your gross sales. Again, tack 5% worth of gross sales to your liability and add penalties and interest.
As you can see, a sales tax audit can almost never go well without at least an appeal, if not a managed audit by a sales tax attorney. You are guilty until proven innocent.
Is Your Business Under a Georgia Tax Audit?
Being notified and going through the procedure of a Georgia tax audit can be a daunting proposition.
The process begins with your receipt of Notice of Intent to Audit Books and Records, from the Georgia Comptroller. The auditor will be looking for violations of Georgia tax law and whether additional taxes, along with penalties and interest, can be assessed against you.
You should understand from the start that an auditor’s job is NOT to help you accurately determine your tax liabilities. The auditor’s job is to find additional taxes due. It is that simple. If the auditor can call into question an entry or record, then the auditor will do so – and usually project that one record across the entire 3-year audit period, exponentially increasing your proposed Georgia tax assessment.
Particularly with a business, the State will look for instances where your business has collected sales tax from customers but failed to remit all or part of these monies to the state. Collecting but not remitting Georgia taxes (think Sales Tax or Unemployment Tax) is one of the worst possible things a business owner can do with regard to Georgia taxes.
If you consider penalties and interest to be painful, then you might be surprised to find out that collecting but not remitting Georgia taxes can land a business owner in jail. Under Georgia law, collecting but not remitting these “trust fund taxes” is considered stealing from the state and the business owner and employees can be charged with as high as a felony under certain circumstances.
Even if you feel you have been compliant, we strongly recommend that you do not represent yourself during a Georgia tax audit. The Georgia Department of Revenue auditors have many tricks up their sleeves that can limit your rights under Georgia law.
It is vital to have a knowledgeable and experienced tax professional to assist you through all stages of the audit, from the initial notice through to its conclusion.
Georgia Tax Audit Protection
The State will ask to either do a “Desk Audit” in one of their offices or a “Field Audit” at your place of business.
You should consider saying “NO” to either request, or better yet – let us say no for you.
Do not let an auditor into your business; make the auditor come to your tax professional’s office. We know how to “control” the audit, so the auditor does not go on a “fishing expedition” (looking for ways to accuse your business of underpaying taxes).
These are commonly the types of Georgia taxes that are audited:
All auditors request certain records and ask questions regarding your business and accounting methods. Often the auditor will ask for things that they have no right to demand or will ask the taxpayer to sign documents that the taxpayer does not have to sign.
We know the games the Georgia auditors play and how to defend against them.
The State auditor has the authority to assess additional taxes plus penalties and interest. They can also give your case over to the criminal investigation division.
Georgia auditors may be highly trained in tax law, but they have been taught to constantly suspect you are underpaying tax and ways to prove it.
Don’t you want your tax professional to have greater knowledge and experience than the auditors, who are coming to your business to look for ways to accuse your business of underpaying Georgia taxes?
Frequently Asked Questions
What is a sales tax audit and why was my business selected?
A sales tax audit is a review conducted by the Georgia Department of Revenue to verify that your business has properly collected and remitted sales tax. You may be selected due to irregular filings, industry targeting, or random selection. Sometimes, audits are triggered by discrepancies or complaints.
How does the auditor use sampling during a sales tax audit?
Auditors often review a few months of sales data and extrapolate it to estimate your entire year’s tax liability. This method, known as sampling, can unfairly inflate your liability if those sampled months are not representative of your full year’s business activity.
Can an auditor estimate my prices and revenue based on other businesses?
Yes, but this practice is highly questionable. Auditors may compare your pricing and profit margins to similar stores in your area without accounting for discounts, promotions, or customer demographics—leading to inaccurate assumptions about your actual revenue.
What happens if my business only accepts debit and credit cards?
If all your sales are via card, auditors might still estimate a percentage of unreported cash sales by comparing you to similar businesses. If they assume 5% of your sales should have been in cash, they may accuse you of hiding revenue, resulting in higher taxes, penalties, and interest.
Should I handle a Georgia tax audit myself?
It’s strongly advised against. Auditors are trained to find underreported taxes and often use aggressive estimation methods. Hiring an experienced tax attorney can help protect your rights, limit liability, and manage the audit process strategically to avoid legal or financial pitfalls.
