What Are Common Problems in a Sales Tax Audit?

What Are Common Problems in a Sales Tax Audit? On it so we've done a lot of sales tax audits on our firm and I can speak very generally about some of the problems that we see most often that our clients encounter were that we've encountered through the course of dealings so problem number one is the majority of people who are under reporting on sales tax for whatever reason or another don't do enough to cover their bases well that seems fairly silly it's really true .The biggest way that people get nailed for sales tax audits is by data that doesn't match so what happens is when you file a sales tax return that gets reported to CB T FA and then in the drill in the evaluation process to determine whether they're going to audit you CDTFA is looking not only at your taxable sales and your total sales due looking at your federal income tax returns and they're looking at the information that was reported on your 1099 KS and any other publicly available information that they could find we're not publicly available but available to them so IRS transcripts you know so on and so forth so the biggest problem that people have right off the bat is sales tax returns and federal income tax returns not matching your reporting a lower or higher amount of the sales than you are on your federal.

Income taxes so when you have those situations you're probably going to get audited there may be a natural explanation may have taxable demand labor built-in there you may have certain sales that were not in California and may have exempt sales there could be a variety of reasons but the problem is that we see with clients is that clients fail to match their data and or they go in the audit without a proper explanation for why their data doesn't match number two the big thing we see is invoicing we see more mistakes on invoicing and it's so hard to build a narrative when you don't have invoices that support what that narrative is and a lot of the mistakes that we see on invoicing or benign it's people not separating shipping charges properly or people not accounting for time and material costs or billing things individually they're just really simple mistakes and the problem is is look again in a normal course of business when you're doing your invoicing the last thing you're thinking about is is the sales tax auditor going to look at this and how are they going to look at this you know a my reporting sales properly at least from an invoice perspective but it makes a huge difference and I can't tell you how many situations we've had to dig clients out of by saying look your invoicing doesn't accurately reflect what's going on here it's a real big problem so there's not enough screening of invoicing going into. The sales tax on number three by far the biggest mistake we see is people operating under the false assumption that because.

I pay all my sales taxes I'm not gonna have any problems I can't tell you what a big fallacy this is because of the way that sales tax audits work is people naturally assumed because I'm doing everything correctly I'm not gonna have a problem with the auditor and the problem with the sales tax order this there's just there's too much data there so always go into a sales tax audit thinking that you have any problem because you do have any problem you have an auditor who's going to look over your books and potentially make a correction that might not be in your favor so those are the three classic mistakes I see clients making the sales tax audits and that's the biggest things I would set urge you to correct ahead of time again sales tax audits are best handled by an attorney you screen a lot of these issues out ahead of time but just so you're aware those are the things that kill the clients the most Up next.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law