How Our Company's Selected for Sales Tax Audits? Why Was I Selected for a Sales Tax Audit? Companies are selected for sales tax audits in a variety of different ways but the one thing I want to highlight is that the state has very limited resources in terms of which companies it chooses to audit sales tax audits in particular are tremendously resource consuming activities, so the state has to be very careful about which companies it selects for audit and which it doesn't so for example the way.

The process works is headquarter will headquarters will identify certain accounts it will for those accounts to the district where the taxpayer resides and then at the district level the district makes the decision on which of those accounts it's going to audit based on available resources and which ones it's not so why do people get out of it well people get audited for a variety of there could be a whistleblower complaint for example and they could get a tip they could get a tip from a another state agency or from a federal agency in some cases they can have a change in their data so a lot of times when there's a dramatic drop or increase in sales in any given year and more specifically over a three-year period which is when they look at for sales tax audits that could something that can get you audited bad math can get you audited if they see mathematical errors on the return that's a high likelihood that there's an error in the way that you're reporting sales tax in addition you can also get audited for things like a high amount of exempt sales if your company's exempt sales relative to its taxable sales and related to its total sales obviously depending on how those ratios work themselves out that can be another audit red flag for sales tax and then finally you can look at something like an industry so there's certain industries that get targeted more frequently industries that deal with a lot of cash such as bars in a restaurant industries with a lot of taxable purchases such as in the construction industry Healthcare gets audited quite frequently car dealerships get audited quite frequently and so on and so forth so the state is very familiar with what industries generate the most yield from it in terms of what the error is between reported sales tax and actual sales tax owed so it picks on the same groups of people over and over and over again so it couldn't be any combination of those factors it can be any one of those factors but you can be assured that when you're audited for sales tax there's a reason that they're coming after you.