What Happens After a California Sales Tax Audit

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Challenging the Tax Auditor’s Findings - After the Sales Tax Audit

Once the auditor has finished their investigations, there will be an exit Exit Conference where the findings are reviewed, and the auditor will prepare a Report of Field Audit or a Report of Investigation. A CDTFA supervisor may be in attendance as well.

Once the findings are presented, you have the chance to disagree with the findings and explain why. You will be given time to gather documentation and present any information you think supports your case.

After you have made your argument, the auditor may do one of three things:

  • Adjust the findings
  • Request more evidence
  • Arrange another meeting to discuss your case

After the official report is filed, you will later receive A Notice of Determination (billing), which will outline the taxes and/or fees you owe or A Notice of Refund.

If the CDFA owes you a refund, they will first check to make sure that you do not have any other outstanding tax liabilities with any state agency. If you do, the refund will be applied to that tax debt. If you do not, they will issue a refund warrant usually within four to eight weeks of the Report of field audit.

If you do have a sales tax liability assessed against you and do not plan to appeal, you will need to pay the amount due within 30 days of the assessment.

If you fail to pay within that time period, you will be charged a penalty of 10 percent of the amount owed. Interest is also charged on the amount owed and the interest rates vary. Persistent failure to pay will expose you to aggressive collection actions by the CDTFA such as liens, levies or seizure of property and assets.

If you still disagree with the findings, you will need to file an appeal (“petition for redetermination”) within that 30 day period. The CDTFA has a long appeals process, and at each stage you will be required to make your case. 

In an audit situation, the reality is that you are generally assumed guilty until proven innocent.

 

Meeting with the CDTFA Supervisor

If the supervisor was not present at your exit conference, you may now request a meeting with that person if you and the auditor are unable to reach an agreement about the audit findings.

You will again have the opportunity to present your information and reasoning while the auditor prepares a Report of Field Audit or a Report of Investigation. The CDTFA supervisor will analyze both sets of data.

If you are still unable to reach an agreement on the outcome of the audit, you may meet with a CDFA representative within 10 days of your meeting with the CDTFA supervisor.  Otherwise, you may consider meeting with the District Principal Auditor (DPA) to discuss your disagreement with the audit.

The DPA is actually relatively helpful in resolving issues or clarifying the CDTFA’s position on them.

Afterward, you will have a follow-up meeting with the California Department of Tax and Fee Administration representative and make your presentation once again. At this point in the process, if you and the CDTFA continue to disagree about the audit and the case remains unresolved, the CDTFA will issue a Notice of Determination, and you may enter the Appeals process.

 

Appeals Process and Settlement

Once the Notice of Determination has been issued, you have 30 days to file a Petition for Redetermination using Form CDTFA-416. You may, instead, file your own petition but it must contain the following elements:

  • It must be in writing
  • Identification of the amount or amounts you are contesting
  • Statement of the specific grounds or reasons you believe the tax is not owed
  • Your signature as the taxpayer or the signature of your authorized representative

If you prefer, you can also request an oral hearing in front of the CDFA. You may also request an appeals conference where you can present your case.

At this point, you have the option to make a Settlement Review Request instead using Form CDTFA-393.

If you are not proposing a settlement and the case remains unresolved, there is a final step you can take.

 

Judicial Proceedings

You must go to court and attempt to prove your case. However, at this point, you are required to pay the proposed tax in full, although you will not be asked to pay any interest now. 

The request for a judicial proceeding is a request for the court to review your information and the results of the audit. If the court finds in your favor, you will be refunded the tax you paid. If not, you will now be asked to pay the interest and any penalties as well.