States have set lose an army of sales tax auditors who’s job it is to collect as much revenue as possible. Their target is virtually any business operating in their state. For many of these businesses, this may be their first audit by that state. For others, it may be a repeat audit with a new auditor. In either situation, the deck is stacked in favor of the state and against the taxpayer. Businesses that are unprepared for an audit will not have a good experience.
I recently met with a company that is about to be audited. It is their first audit and they were feeling rather confident that there would not be any problem. I encouraged them to sit down with me to review some high level reports and discuss the processes they use. In short, this exercise was eye-opening to them. Not only did I spot significant process issues with how tax was being collected but there were serious use tax issues that had been completely missed. There were missed refunds and missing exemption certificates. Having found these issues, we could then develop and approach to manage the audit to minimize exposure and to ensure the auditor understood the actual scope of some of these small problems.
Without this review, the company would have been playing defense from the minute the auditor walked through the door. Now they know where problems exist and have already started to gather support to fill in the gaps in their processes and documentation. The best defense is a good offense.
Every company should have and independent pre-audit review once they are notified of an audit. Company personnel are too close to the situation to be objective at spotting problems and understanding the consequences of these problems. Further, many companies may be overpaid on tax and need to take actions to file refund claims before the auditor arrives. Auditors are not hired to look for over payments!!
If your company has been notified of an audit, pick up the phone and call me at 770-985-9573. DO NOT try to manage sales tax audits alone. Invest a little time and money in a pre-audit review so that you will know the problems before the auditor arrives. Only then, can you fully manage the audit process and minimize your liability.