We hope this guide has been helpful to you in managing your sales and use tax audit. A sales tax audit is no stroll in the park. You need to invest the proper efforts internally or seek outside help.
Defending businesses against a sales tax auditor is a highly specialized area of consulting. Over the years of working with clients to minimize the tax assessed against them we have gained invaluable experience and it’s our pleasure to share it with you.
Whether you use this information to manage your audit completely start-to-finish or to at least gain some familiarity with the process to know how to avoid common pitfalls, then it will have been very valuable indeed.
FAQ ► Should We Bring In Outside Consultants to Help with this Sales Tax Audit?
We can’t answer that without knowing your particular situation, but we can give you some points to consider.
Consider getting audit representation if any of the following conditions exists:
- You’ve never been audited before. An experienced representative will help you prepare and cut down the time it takes to resolve the audit.
- The timeline is advancing quickly. Should the state provide an aggressive timeline to begin the audit (less than a month), you will need help preparing for it. Outsourcing will save you time and money in the long run.
- Your team is already busy. If you don’t have a person internally who can be your Audit Coordinator and/or can’t spare enough competent staff members to do a pre-audit review and deal with the auditor while he or she is onsite, you should consider hiring outside consultants. A pre-audit review is highly recommended, so that you know what you are dealing with before the audit begins.
Do This ► If you opt to use a third party for the preparation and actual audit, make sure you understand the scope of their work and how they will be compensated.
Do This ► The fee should always be based on offsets actually granted by the state. Payment should be made at the end of the audit, or a provision should be included to reverse any offsets not allowed.
Do This ► Understand whether their services are included only at the audit level or whether services related to appeals or tax court are included.
Do This ► Understand the consultants’ specific experience with your state and your industry. Ask for references.
Not That ► Do not engage in contingent fee arrangements on questioned items by the auditor unless you have already made the first pass. Otherwise, you may be paying a contingent fee on reductions for errors made by the auditor or obvious exempt transactions.
Not That ► Pay the fee until you have written documentation from the state audit division.
Not That ► Do not give them the power to make a settlement offer without your consent.
Not That ► Hire someone whose primary working experience is as a former state sales tax auditor. Get someone who has 10 or more years working on behalf of the taxpaying businesses. From our experience, it can be difficult for a former state tax auditor to change hats and think in terms of the business’ interests.
TIP ► States often allow the taxpayer to make a payment from the preliminary assessment to avoid incurring additional interest costs.
If the audit is agreed upon, the taxpayer may wish to consider this alternative. In some states, if the audit is only partially agreed upon, the taxpayer may pay that portion to reduce interest costs on the overall settlement.Check the Interest and Penalty CalculationsYou should also verify the accuracy of the interest or penalty calculations. Many states use simple interest, which makes the verification process relatively easy. If a penalty has been included in the assessment, you should consider asking for a waiver.The deadline is usually thirty or sixty days after the date the notice was mailed or received. If the taxpayer fails to file an appeal or protest by the deadline, the assessment becomes final and the results cannot be appealed. If the taxpayer does not make payment or file an appeal by the deadline, additional penalty may be assessed and additional interest will be assessed.
Nobody wants to be pressured into a decision and no one wants to be “sold”. Sorry to say, but there is an undesirable element of high pressure salespeople in the world of state tax audit consultants. You may have already experienced it.
I’m not against sales consultants whose primary role is to give you information you need to make an informed decision, but if all they’re doing is heaping on the pressure, I’d stay away from them.
So how to decide? One way you can assess the experience and knowledge of a consultant is to read their material and listen to them speak. The benefit of After all, you only want to do business with someone you feel like you know and you believe this person knows what they’re talking about.
But it goes deeper than that.
This consultant is going to be representing you in a very important audit situation that may have dire implications for your company. You need to be able to trust them. And we shouldn’t understate the importance of liking your consultant. We have choices in this world, and we should like the people we work with.
Look up your consultants on the internet. See what they’ve written in blogs, on LinkedIn. If you’re lucky to find that they’ve given speeches or webinars on fighting sales tax audits, check them out there. See what they’re all about by listening to their presentations.
Then, you will have a better idea if you’d like to invest some time to meet with them. Just make sure they are willing to invest their time in you before they ask you to invest your hard-earned money with them.
Free Webinar on the 5 Biggest Mistakes Companies Make in Sales Tax Audits
We do webinars almost every week on various sales tax topics including one on How to Avoid the 5 Most Common Mistakes in a Sales Tax Audit. You can check it out here.
Under Audit Now and Need to Talk to Us About it? (no charge consultation)
Are you (or your client) under audit right now and need to meet with us (AT NO CHARGE) to get some advice from us on what to do next? You can request a meeting with us using this link.
“An expert is a man who has made all the mistakes which can be made, in a narrow field.” – Niels Bohr
It may be a great idea to bring in some outside help to at least review your sales tax audit assessment. An experienced, competent third party can shed some light on your situation and give you an idea of what you should do next.
This should be a no-cost, no-obligation review just to give you some direction on what your next move should be. It could save you thousands of dollars on your current or upcoming sales tax audit.
LET'S WORK TOGETHER