Chapter 08

Secrets of a California Sales Tax Audit Defense

Sales tax audits are one of the areas of practice that I am most proud of at our firm. We have dealt with some very difficult cases and gotten some really phenomenal results. I credit that to the hard work and diligence of our team. Brotman Law really understands sales tax audits. 

We understand the tax law surrounding why sales are taxable and why they are not taxable. We understand the tax procedure in terms of understanding the interactions with the auditor, their manager, and the district principal auditor, and then through the appeals process, and up through the Office of Tax Appeals.

Finally, we understand statistical sampling which is a very rare quality in attorneys. Most attorneys do not have a strong knowledge of statistics. It is not something that they teach you in law school.

Statistical sampling and being able to sustain a data fight in the context of a sales tax audit is a very admirable quality. 

We want to be on not only equal footing with the auditor, but we want to have the superior advantage during the entire audit because in our experience that is the way you get results for the client.

We use a very measured approach. We measure twice and we cut once, but our methods are strategic. They are designed to make the process as least burdensome for our clients as possible.

They are designed to move them through the sales tax audit process quickly and with as little exposure as possible. We are very good at what we do in the course of sales tax audits.

We fight. We have a strategic tenacity and we do the best we can to leverage our efforts to get you the best result. I encourage you to sit down with us and give us the facts. Let us look at your documents and let us start formulating a strategic plan.

Whether or not you ultimately choose to retain us, at least take advantage of the benefit of our knowledge so that we can look at your facts and guide you specifically through your situation.

Sales tax audits have the potential for a great amount of risk for people going through them. Even clients who make the mistake in thinking that because they have not done anything wrong they do not have any risk in an audit.

A classic example of this is when California use tax is involved.

The good news is with our help, strategic planning and expertise with the execution process, you can minimize your liability as much as possible.

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What to Expect Cost-wise

As I have mentioned before, sales tax audits are very cumbersome processes. They involve a lot of documents and a lot of data and they take a while to get through.

At our firm, efficiency is one of our key factors in the work that we do. We want to make sure that the work and the value that we are providing for clients are in line with their cost expectations.

With that said, sales tax audits are a lot of work. There is a lot of organization and presentation of the materials. There is a lot of tendency for disagreements in sales tax audits particularly when the auditor is using statistical samples. 

Oftentimes, those statistical samples come out wrong on the CDTFA side and we have to correct them. It gets tough when you have an auditor and you get into a conflict with that auditor and the auditor will back down.

With that said, sales tax audits have the ability to drive cost. One of the things that we do to mitigate cost is by trying to minimize cost in three key areas.

The first one is with decisions. We would like to put our clients in the position to make quick and accurate decisions. The easier decisions come, the easier it is to deal with the sales tax audits and the lower the cost to the client.

Number two is documents. We work with the client and our team to streamline the document gathering, organization and presentation process.

A lot of times, we can put the burden on the client and the client has internal resources to handle document organization and delivery much more efficiently than our staff or at least at a lower cost. 

If that is not the case, we have a very talented team of junior staff members who have done a lot of sales tax audits and who can work through the process very quickly, assembling exactly what our senior team is going to need to defend the audit.

The third avenue is bureaucracy. Unfortunately, with most agencies, bureaucracy goes hand-in-hand. Occasionally, you are going to have good people in the CDTFA, who are going to move the audit through quickly and without hassle but also occasionally, you are going to have some bad people. 

Most CDTFA auditors will fall within the middle but the goal, at least at our end, is to organize the audit to come to terms with the auditor at the beginning and to agree on an audit plan to move the audit forward as efficiently as possible.

With those caveats said, what I tell clients is sales tax audits usually range between $5,000-$15,000.

Obviously, that is a pretty big range but it depends on the client, it depends on the amount of data that we are dealing with and it depends on the difficulty that we are having with the auditor. Rest assured, we are going to try and minimize the cost in the process.

We certainly are cognizant of the fact that a sales tax audit is a marathon and not a sprint and we want to save and allocate resources for when we are actually going to need them.

We also want no illusions coming in about how big the process is and how much risk it is to you if it does not get completed properly.

That is the best estimate that I can give you about the cost of your matter. If you want to know more, the best way for me to give you a cost projection is by understanding the facts about your particular situation.

When I can apply your facts to the situation at hand, I can give you a much better estimate of what the cost would be in your particular matter.

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