Businesses sometimes undergo sales tax audits to ensure that they have complied with the laws regarding the taxes paid on their revenue. The government will examine documents looking for proof that the correct amount of taxes has been paid to the proper parties. Sales tax audits happen relatively infrequently, but when they do, it’s good to be prepared.
An accountant can assist you with actions that will prevent your business from being audited and can help if you receive notice that your business must undergo one. The Roseville and Sacramento sales tax accountants and CPAs at Cook CPA Group can help you throughout the audit process. Get in touch with them at your earliest convenience to set up a free consultation and learn more about they can help with your business’s sales tax audit.
Understanding Sales Tax Audits
A sales tax audit happens when a government tax agency examines a company’s financial documents to make sure that they have paid the right amount of sales taxes to the proper entities. The government will request proof that revenue was properly taxed and remitted. The length of a sales tax audit varies. In some cases, the audit will entail producing a few documents to the government tax agency; in other cases, the audit will require the production of many documents.
There are many reasons why a business may be selected to undergo a sales tax audit. If a business closes a brick-and-mortar location abruptly, declares bankruptcy, or dissolves quickly, they may be subject to an audit. A sudden drop in taxable sales or claiming frequent refunds are other causes for an audit. Businesses that file taxes late or that file their sales taxes without filing use taxes can also be susceptible to an audit.
Navigating a Sales Tax Audit in California
While some businesses must undergo a sales tax audit because they have intentionally tried to manipulate the tax system in their favor, a great number of audits happen because a business accidentally failed to include necessary information in their taxes. Businesses can avoid this by being diligent about keeping track of and properly disclosing all information pertaining to their financial transactions.
One thing that businesses must keep track of is their nexus. Nexus is, basically, the significant presence of a business within one state or jurisdiction. If this presence is established, it means that said business will have to pay sales taxes to that state. Failing to do so increases a business’s chances of undergoing an audit. Businesses can avoid sales taxes audits by keeping close track of the states and jurisdictions in which they have nexus and paying sales taxes accordingly.
Another way that businesses can avoid susceptibility to sales tax audits is to apply sales tax exemptions correctly. Applying exemptions on certain purchases (such as those related to manufacturing or transportation) can save businesses money, but a business can run into trouble if they apply exemptions too liberally. Furthermore, businesses can reduce their likelihood of being audited by properly completing and documenting exemption certificates.
Being meticulous and detail-oriented while filing taxes is another key way to prevent your business from undergoing a sales tax audit. Having an accountant do your taxes for your business is the best way to ensure that all of the information is complete and entered correctly. If you do your business’s taxes yourself, you should make sure that your math is correct at every stage, that information is entered accurately, and that all the necessary spaces are filled.
Businesses should make it a priority to organize and preserve all of their documents. Ledgers, sales and purchase journals, invoices, resale and exemption certificates, tax returns, bank statements, shipping documentation, and all other financial documents should be kept safe and remain easily accessible in case of a sales tax audit. An accountant can help you determine whether your files are complete and assist you with filling in the gaps if they are not.
What to Do After You Receive Notice of an Audit
If your business receives notice that it must undergo a sales tax audit, the first thing you should do is respond within the timeframe listed on the letter. The next thing you should do is seek the help of an accountant who can help you to gain an understanding of the documentation that the government is requesting, find it, complete it, and present it to the appropriate tax agency in a timely manner.
After you consult an accountant regarding your sales tax audit, you should get your records in order. Find the necessary documentation that the government tax agency has requested and make copies to be sent to the agency.
You should make sure that you understand your rights during an audit. The State of California guarantees the right to confidentiality, transparency, and prompt, courteous, and fair treatment to all taxpayers. The State of California also guarantees that taxpayers undergoing an audit be granted the right to a fair examination and a clear explanation of the audit process, and that they will not be required to pay more than the amount owed. California taxpayers undergoing audits also have the right to meet with a supervisor, request copies of files, and receive notification 30 days before a lien is filed.
Sales Tax Audit Accountant and CPA Serving Sacramento and Roseville
You don’t have to go through the sales tax auditing process alone. Business owners in Sacramento and Roseville are encouraged to use the help of an accountant or CPA from Cook CPA Group for guidance and support throughout their sales tax audit. Our specialists are available for a free consultation.