The process for appealing a CDTFA sales tax audit begins at the exit conference after the auditor has finished their investigation. If the audit report cites potential underpayment of taxes, fees or additional amounts you owe and you disagree, you will generally be given a time period to collect evidence and make your case.
Your next step is to meet with the CDTFA supervisor and then the District Principal Auditor. If you do not convince them that the results are in error, you can file an appeal.
The CDTFA appeals process is lengthy, so you will have several opportunities to prove that you do not owe the assessed liability. If your appeal is denied at every level, you can eventually appeal to the courts, although California law requires that you must pay the assessed tax (minus interest) before you can file.
If the court finds in your favor, then you can request a refund.
How to File an Appeal With the California Department of Tax and Fee Administration
Step One: Petition for Redetermination
You receive a Notice of Determination, which is a notification that the CDTFA has determined you owe more taxes than you paid. If you want to file a Petition for Redetermination, the first step of the appeals process, you must wait until this notice is issued. You have 30 days from the mailing date.
If you file a petition before the Notice of Determination is issued or beyond 30 days after it is mailed, your petition will not be considered valid. The liability will be considered final, due, and payable.
The Filing Must:
- Be in writing
- Identify the amounts you wish to contest: all or part
- State specific grounds or reasons why you believe you do not owe taxes or fees
- Be signed by you or your authorized representative
- Be mailed to the correct address
If you wish you can include requests for:
- An appeals conference by the Appeals Division
- A hearing before the members of the CDFA (an appeals conference must be held first)
- Your case to be considered under the CDTFA’s Administrative Settlement Program, which is confidential and will not impact your appeal rights
What Happens Next?
The CDTFA reviews your position. At this time, it may ask for additional records or documentation to support your position. You may amend the petition with additional grounds for disputing the original determination as long as it is before the date the CDTFA makes its final decision.
Once the CDTFA notifies you of its conclusions, most petitions are resolved at this point. However, you may still wish to appeal if the CDFA staff denies your petition in whole or in part. You must confirm, in writing, your previous request for an Appeals Conference or a Department hearing.
If you have not already requested an appeals conference or have missed the deadline for responding to the Department’s conclusions, a Notice of Redetermination will be issued to you with the staff’s conclusion.
Step Two: The Appeals Conference
If you are continuing with the appeals process, you will receive a Verification of Appeals Conference Form, which must be completed and returned within 15 days.
The Appeals Conference is typically held in the CDTFA field office that prepared your audit unless you request otherwise. Once you are there, you may record the conference at your own expense, either electronically or by a court reporter, but you must provide a copy to the Appeals Division at no cost if it requests one. The CDTFA does not record these proceedings.
Your conference will be with an Appeals Division attorney or auditor who has had no prior involvement in your case. You will receive a Notice of Appeals Conference from the Case Management Section with the date, time and location. You must return the Response to Notice of Conference Form within 15 days to confirm your attendance.
You may waive attendance if you wish,and submit written arguments and documentary evidence in support of your appeal before or during the conference. If you want to do so after the conference, you will need the permission of the Appeals Division.
After the conference, the Appeals Division mails you a Decision and Recommendation based on all relevant arguments and evidence. The document contains an analysis, conclusion and recommendation for the resolution of your case. A letter will be included explaining the status of your appeal and any options you may have for further action.
If you agree with the Decision and Recommendation, the appeal ends, and the CDTFA will issue a Notice of Redetermination or Statement of Account based on the decision and recommendation from the Appeals Division.
If, however, you do not agree, you may be granted a hearing if you request one in writing within 30 days of the Appeals Division’s letter.
The Consequences of an Audit Gone Wrong
California has over 800 laws and regulations included in the Sales and Use Tax legislation, all with supporting documentation. There are also two guidebooks with 24 chapters between them and a list of around 110 sales and use tax-related statutes.
Let that sink in.
Just the thought of receiving a notice for a sales and tax audit can make you feel like David getting ready to meet Goliath.
If you attempt to represent yourself in an audit and make a single misstep at any stage, things can go south very fast. Once you lose control of the audit process and are left with the deficiency, serious consequences can start stacking up:
- Additional taxes. The determination made by the auditor may be much higher than you anticipated.
- Seller’s permit revocation. The CDTFA has the power to take away your seller’s permit if they determine that you are delinquent. It is a crime to continue to sell without a permit, so this can effectively shut down your business overnight.
- Other license revocation. Thanks to a recent bill, the broad powers of the CDTFA allow them to revoke or suspend the professional permits and licenses of severely delinquent taxpayers, including their contractor, medical or driving licenses.
- Information sharing with other governmental bodies. The CDTFA will send an audit report to the state income tax body, the California Franchise Tax Board (FTB), which then reports to the IRS. This can lead to cascading tax audits from several agencies at once.