There is nothing like hearing the words tax and audit in a sentence together to strike fear in any business owner. Sales tax compliance is something that must be on the minds of any business audit. As the old saying goes when it comes to sales tax audit think of when not if. That way being sales tax compliant remains at the forefront of your mind. The first thing to do if you received a notification of a sales tax audit is – do not panic. I know this is easier said than done but stressing genuinely wont help. You need to be able to think clearly and act rationally and deal with the matter at hand as effectively and efficiently as possible. Bearing in mind that it is mostly a documentary process conduced via mail so the chances are you may not even meet somebody from the IRS.
So what is a sales tax audit?
According to Wikipedia it is the examination of a company’s financial documents by a government’s tax agency to verify if the proper amount of sales tax has been remitted to the proper authority. According to Bob Meighan from Huffington Post stated that “most people don’t realize that only 1.1 percent of individual taxpayers receive an audit letter every year“.
So if you are in the unfortunate 1.1% so what should you do? Talk to the experts. Companies like TaxConnex use their years of experience in the are of sales tax audit you get all the know-how – From wayfair nexus to managing audits. They effectively act as an intermediary between your company and the audit assisting you long along with way. Particularly in a stressful situation it can be invaluable to have somebody deal with the queries, pull the paperwork, give further clarity and context.
It is important to bear in mind that tax should not just be reactive. It is something you need to be considering on an ongoing basis again utilising experts if this is not a skill set you have in house. It may sound simplistic and that im overly simplifying this but you really do need to maintain a tax calendar with all your key reporting/ filing dates on it. Also note that it may change over time and with legislative changes to keeping up date is critical.
A couple of tips
- Don’t panic
- Call the experts
- Every letter from the IRS isn’t necessarily an audit
- Submitting an amendment does not necessarily mean you will increase you chances of being audit -if you spot a mistake correct it
- Most audit are conducted via mail – you might not even meet somebody from the IRS
- A lot of articles in this area suggest businesses which deal a lot in cash, bars, restaurants, etc are more prone to audits to ensure controls around cash and reporting are operating effectively.
- Research suggests that if you sell outside of your own state is increases your likelihood of sales tax audit
- Expect the auditor to use some form of sampling method around your data
- Don’t evading taxes that are legally due
- The auditor is not the enemy that are only doing their job.