How Do You Fight Back With Statistics in a Sales Tax Audit?

How Do You Fight Back With Statistics in a Sales Tax Audit? So statistics just to give you a brief lesson are about the integrity of the data that you have so what you're doing with statistics is you're taking a representative population or an entire data set let's call it a business's sales over a three-year period and then you're taking a representative sample you're trying to create a fair and accurate sample of that population so if we were to look at the business of sales over a three-year period the goal would be how do we take a smaller subset of that that we fare that we feel is going to be fair and accurate so here's where CDT FA and us often get into it as we have what we call it data file so CDT FA and your sales tax auditors have very limited resources so when they do an observation test when they do a mark of test and when they're using the indirect methods of testing they're only going to do it for a certain period of time usually two to three days max and so obviously the challenge is if you're going to take a three day sample or a two day sample how can that possibly be representative of over a thousand days over the course of a three year period three days a thousand days it's not very representative because you can have a variety of things that would go into those three days that could heavily tip the scales in one way or the other hopefully in the favor of your tax payer anyway.

So the way that we counteract this very limited sample is through gathering a better sample so in the course of a sales tax audit we feel that it's going to go down to one of these indirect methods testing will start give gathering data immediately we'll take a one month we'll take a two month shoot we'll take a six month sample if that's what it takes and then within that sample we've got a much better percentage of data that we can rely on to give to the auditor to counteract their assessment so number one like if we're dealing with a month long sample versus three days you would think that the month long sample is going to be a better representation of that total population then the two or three day tasks that the auditor do now it could come out worse with a client depending on what the situation is but you always have that to kind of fall back on so you can take the auditor sample it works better in your favor you can take your sample or you can distinguish between the two so oftentimes you know we'll find faults in the auditor's data will present our data and then we have a better negotiating platform because we have superior damage the most important thing and the term that you'll hear me use quite often that's something called data integrity whoever has the bit of data wins whoever if data looks more complete whoeverís data it looks more accurate they will get the nod more often than not so that's how you beat CDT FA when they run those statistical analysis and how to counteract their data with better data you .


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law