How Do Sales Tax Audits Work in California?

How Do Sales Tax Audits Work in California? So here's how the sausage is made with respect to a sales tax on it the state decides to audit you California sends you a letter that says hey you're being audited and then you will respond to that letter and that kicks off the audit process so from a practical perspective what happens is the government will usually issue an audit request for three years of information or when the case of a sales tax on through operating on a quarterly basis so they're doing it over twelve quarters, so initially from the outset of a sales tax audit you need to understand what your risk is so you ideally want to go through the twelve quarters maybe not in full at the beginning but at least have a general understanding to know where the pitfalls in are in the autumn and then depending on where your pitfalls are that's going to determine on what the plan is with the author so what happens from a procedural perspective is the auditor view and the auditor will talk the order will say we need to set a plan for the audit.

I'd like to review the records and then there's number one negotiating as to the scope of the records that they're being requested so you don't actually have to give them all three years of records just because they say you have to and there's negotiation as to what the plan is for the audit so this is highly fact-specific and it's highly fluid depending on what's being wanted and why it's being audited so on and so forth but generally speaking the idea here is you want to agree with the auditor on a scope of documents that's being and why and number two you want to agree on a general audit plan for making sure that this is being handled appropriately it's being handled efficiently and that progress is being made to move the audit floor and then based on that agreed-upon plan you'll Auditor give you a period of time usually 30 days to get your documents together to present them to the auditor so within that 30-day period the initial 30-day period in any audit is probably the most critical time the reason it's most critical is because this is the information.

This is the time that you have to pre audit the client to get access to information and to go through analyze what your risk is and work on what the initial presentation is going to be? If you've managed to streamline documents or you've managed to limit sampling in the course of a sales tax audit this is your best opportunity to really present that information so the nice thing about nearing the scope of the audit is to get to choose the hill that you charge up to fight the battle so within that you make a presentation of the auditor the auditor will likely have more questions particularly in a sales tax audit and then you kind of go back and forth until all the questions have been resolved and then the auditor will make a decision and it's either a good decision and you agree with it it's a decision that you disagree with or you continue to go back and forth until you refine it to your satisfaction so in the event that you don't like the decision you go to the appeals process and the event that you do like the decision and you sign up on the audit and the audit concluded so that's a basic walkthrough about how the audit process works and I've really condensed it the sales tax audits you usually take a lot of time they're usually at least a six month process there's usually multiple rounds of back-and-forth particularly with sampling whether you want it gets complicated so but that's generally the way that things will flow during the course the autumn so again the most important time in the audit is the beginning because you're setting the tone for the way that the audits going to go moving through things you're creating a plan and then it's just about executing on that plan and if you do that but they want to process hopefully should work into your family again my advice in sales tax one is always retain an expert it's always been a value to have somebody in your corner I'm going to go through these issues with you gonna help you develop your plan go to negotiate with the Orang are going to make sure the statistical sampling is fair and that's really really important and really critical for a variety of reasons and what you don't want is when the audit starts to get off-track that's where a lot of the problems are and chances are the clean up for that has been much more expensive much more time-consuming and much more of a headache and if you just did it right the first place so I'd really encourage you get it done first get it done right and then never do it again.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law