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Sales Tax Audit Best Practices

In order to bolster their revenue, many states are increasing the scope and number of sales tax audits. There is more pressure on states to close budget gaps, and state revenue departments are looking for more ways to get their revenue streams flowing. With sales tax audits, states can collect additional revenue without putting new laws into place or increasing existing tax rates, and so it’s a popular method for closing budget holes. Because of this, taxpayers are getting more and more sales tax audit. This article will examine, succinctly, sales tax audit best practices. There are four unique phases to the life cycle of a sales tax audit: (1) the initial conference; (2) the sampling; (3) the audit performance; and (4) the period for post-assessment.

Initial Conference

An initial conference is set up when a taxpayer is notified of a sales tax audit coming up. There are several things discussed during the initial conference. What information is available, what items are being given an audition, the scope and reason of the audit, and the logistics of the audit are all on the table, as far as what’s appropriate. Here are some tips to make the initial conference go more smoothly.

1.    The auditor initial contact is extremely important. It will set the tone for the entire audit conference. Make certain to cooperate and act in a courteous manner the whole time.
2.    Keep a record of all communication between the auditor and the taxpayer, especially any agreements that are reached. One can look at the historic record to clarify items afterward if there is a dispute.
3.    Ask the auditor to issue all requests and questions in writing. It’s important to keep a written record of everything.

Sampling

Before the audit starts, the kind of sampling, and the sampling period too, are assessed. Sampling is broadly used in audits. There is an audit sample that is taken for omissions, misstatements, and errors, and if there is a resulting underpayment, it is projected out to the rest of the audit period.

Request the sampling method, if you can. Every jurisdiction will use a different approach. Depending on several business factors, it may be less risky to use one sampling methodology over another.

Throughout the Audit

Once the auditor has come in, it is critical go through with the guidelines that are outlined in the first entrance conference.

Post-Assessment

Once the auditor has finished his work, the taxpayer will get a copy of the assessment. If the taxpayer agrees with the assessment, the payment can be issued, and the audit will be completed.

1.    Consider the different appeals that are open to you in your state, and choose the one that has the ideal combination of nice attributes. For example, depending on what circumstances you have, a taxpayer can opt to use some kind of administrative forum. These kinds of forums can argue issues that wouldn’t normally be given an ear in court, like equitable issues, industry standards and so on.
2.    If the taxpayer receives a negative determination at an appeal, he can request a settlement or compromise.

These tips should help you throughout your sales tax audit but the risks of potential tax liabilities are high you should seek professional opinion. Contact Sales Tax Accountants today for a Free initial assessment at 404-855-7000.

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