SALES TAX AUDITS

It’s no secret that states are running the most significant budget shortfalls in the Post-WWII era. As a remedy, they can either raise tax rates, increase the base, add more taxes, or heighten enforcement. Clearly the most pragmatic thing, and least politically problematic thing to do is heighten enforcement. And the best way to do this is through sales tax audits, which represent the most-overlooked area of corporate tax compliance, and the largest source of audit revenue for states.

Often times, it seems that companies are going about their business, and a state sales tax audit comes along and really throws them for a loop, resulting in hundreds of thousands – even millions of dollars in unpaid sales and use taxes.

Therefore, CFOs, tax directors and controllers need to be focusing their attention on state and local sales tax matters to ensure that they are legitimately minimizing their state and local tax risk. They can do so by making sure that they are aware of where their business has a taxable presence and filing obligations, and are in compliance with the complex tax rules applicable to income, sales/use, property and other taxes and fees.

To minimize audit risk, “audit thyself” – the most important thing you can do to minimize audit exposure is to proactively review your obligations and your records with your sales tax advisor, to know where your exposure is before an audit occurs, and – to the extent you are audited - manage the auditor’s expectations and document flow. There should be no surprises. It is also critical that you proactively review your nexus, and state tax compliance rules - Are you taxing sales accurately everywhere you have a presence? Are you accruing use tax on purchases on which vendors do not charge sales tax?