So aside from discrepancies between the client's reported taxable sales and the taxes due, with CDTFA's calculation the the biggest problems that we see are in little technical areas. So the first one is sales for resale in California. When you sell a product for resale and obtain a valid resale certificate, that product is not taxable to you so the important thing here is number one, the product is being sold for resale. So it's moving down the supply chain because from the state's perspective, the state doesn't want to tax it in the middle of the supply chain, it wants to tax it at the end of the supply chain. So if you're manufacturing baseball bats and somebody is buying them to resell them to consumers, the state wants to tax it when it's sold to the consumer at a higher market price versus when it's sold to the retailer. So with sales for resale, the actual resale itself is an exempt sale but it's only made exempt by the attainment of a resale certificate. For that particular transaction, the problem that we see with clients and one of the biggest discrepancies
that we have is when clients don't maintain accurate resale records. They'll have a resale certificate on file for a client and they'll get it once and they'll never have it again. They'll fail to retain accurate resale records and then they'll kind of go from there. So reselling is very important within the context of this. The other big issue that we see is interstate commerce transactions. So when you sell a product in California and it goes across state lines, that is an interstate commerce transaction. It's exempt from California sales tax. The problem is that if you can't show passage of title taking place outside of California or if you're not shipping through a common carrier, UPS, FEDEX, some of the other third party logistical services, then that makes that sale taxable in California. So in both cases even though the sale is technically non-taxable, the failure to maintain accurate records and the failure to maintain complete records is what dooms clients in sales tax audits. And naturally given the toughness of the CDTFA in these sales tax audits, they're not really going to give you the benefit of the doubt. So if you have one of these two issues it's very important that you address it at the beginning and you make sure that you're going to be able to get it past the auditor in the manner that's most beneficial to you.