The objectives of a sales tax audit are simple: 

  • Verify if a business is charging and remitting the right amount of sales tax on taxable sales.
  • Look for mistakes or discrepancies in tax filings or records that might have slipped through the cracks.
  • Maintain an environment of fair play, where no business has an unfair advantage by not properly collecting and remitting sales tax.

Yet even though every business should be prepared for an audit, it doesn’t mean the tax man will come knocking at everyone’s door with an audit notice. 

What triggers a sales tax audit? 

Not all businesses get audited, and the likelihood of an audit can depend on various factors. While audits can be somewhat random, certain activities or situations may increase the chances of a business being selected for an audit. Here are some factors that might lead to an audit:

  • Red flags in previous filings
  • High sales volume 
  • Remote sellers who have multiple economic nexus
  • Previous non-compliance
  • Changes in business structure
  • Acting on a whistleblower tip

How long does a sales tax audit take? 

That’s probably one of the first questions that comes to mind for businesses who have been served an audit notice. Because audits can feel like a guillotine hanging over the future of the business. And it’s a period that’s filled with uncertainty and a fair bit of nervous tension that makes it difficult to continue with regular business operations. 

Sales tax audits usually take between 3 and 7 months depending on factors such as the following: 

  • The scope and complexity of the audit
  • The cooperation and preparedness of the auditee company
  • The nature of the issues found during the investigation
  • The size of the business
  • The regulations of state practices:
  • Appeal process if companies do not agree with the findings of the auditor

There are a lot of factors that can prolong your audit, factors that businesses have no control over. So the real question is, is there anything you can do to make sure your audit isn’t drawn out unnecessarily? 

Your Sales Tax Audit Preparation Checklist

So what can you do to simplify your audit and make sure it goes as smoothly as possible? 

Before the Audit 

  • Review the Audit Notice and Prepare Documentation

Carefully review the audit notification, noting the scope, time frame, and specific information requested. Then begin gathering the requested documentation, including sales records, purchase invoices, exemption certificates, and financial statements.

During the Audit

  • Think twice before agreeing to a statute of limitations waiver

A statute of limitations waiver may offer a company extra time to get their documents in order, it also prolongs the auditor’s time with the audit and gives them more time to dig out even the smallest non-compliance. Which means any discrepancies are added onto the initial review period, and interest on unpaid taxes continue to grow. 

  • Be wary of expedited sampling methods

Auditors often rely on varying sampling methods to speed up the audit. But some sampling methods, such as block sampling which focus on a narrowed reporting period, can create a skewed image of your compliance by unintentionally focusing on a brief period where non-compliance crept into your reporting.  

  • Request a waiver of sales tax penalties

If an auditee company has never been guilty of fraud or willful negligence in their non-compliance, then tax authorities will usually waive sales tax penalties and only demand payment of taxes and accrued interest. 

  • Cooperate with the auditor … if they ask for it

Cooperate fully with the auditors, providing prompt and accurate responses to their inquiries and providing them with your records and documentation, but never offer documents that weren’t requested specifically. This could prolong the audit and open up new investigative avenues. 

  • It’s harsh, but keep them isolated

Also try to see to their needs proactively, giving them snacks and coffee and so on, and isolate them from employees and customers. Remember, they’re looking for any and all forms of discrepancies. 

After the Audit

  • Take a breath, stand tall, and strengthen your future

Audits can feel like weight around the neck of the business’s future. But as long as fraud and willful non-compliance wasn’t unearthed, audits are actually valuable compliance roadmaps, giving businesses valuable ways in which to strengthen their growth going forward. 

Keep in mind that your business is unique and there may be unique requirements and additional steps or preparations, which highlights the importance of consulting with a sales tax expert as soon as an audit lies on the horizon. 

And remember, maintaining a proactive approach to compliance can significantly contribute to a successful sales tax audit.