Wednesday, April 15, 2009

So, what triggers an audit?

Here, in no particular order, are some reasons why the auditor might pay you a visit:

-They find invoices from you to your customers where you haven’t been charging tax. If you’re shipping from within the state, why the heck aren’t you charging tax if it’s a taxable sale? And if you’re from out of state, the auditor might believe you have nexus in their state, particularly if your customer mentions that your rep visits every week.

-They find invoices to you in your vendor’s files. And the vendor didn’t charge you tax on a taxable sale. They may decide to audit you to see if you’ve accrued the use tax.

-There are certain industries that just get pounded because the taxing policies are so complicated that it’s guaranteed that errors will be made (eg. manufacturing and construction). Remember though that the auditor isn’t looking for the errors that were made in the state’s favor. They’re only looking for situations where you failed to pay enough.

-And if one of your competitors gets audited, they may say something like, “well, everyone else does it.” And you know what’ll happen then.

-Some states have wised up to the fact that some professional services organizations (like architects, CPA’s and lawyers) haven’t been paying use tax on their purchases. And they had no clue because, since they didn’t have to file a sales tax return, they didn’t even see the line on the return that talks about how they owed use tax on their purchases.

-Asking for a large refund or credit is sure to attract that attention of an auditor.

-If you get audited for nexus by one state, and they find stuff, and they find you have nexus in other states, you'll get snagged by those other states. If you get nailed by one state for nexus, immediately contact a SUT professional to deal with the situation before the other states call you.

-And the final reason you get audited…they threw a dart and hit your name.

Sales Tax Guy

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