What Are Some Major Technical Issues That You See in Sales Tax Audits?

What Are Some Major Technical Issues That You See in Sales Tax Audits? So aside from discrepancies between the clients reported taxable sales and the taxes due with senior TFA'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 tip 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 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 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 like a client and they'll get it once and they'll never have 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 main accurate records and the failure domain complete records is what dooms clients in sales tax on and naturally given the toughness of the CDT fa 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 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 Up next.


Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law