If you work in one of these industries, it`s especially important to assess your tax and sales obligations and put procedures in place to mitigate risk. The average audit costs a company more than $300,000, according to a report by Wakefield Research. Their survey received responses from 400 U.S. finance and accounting professionals in industries such as e-commerce and retail, software and technology, and manufacturing and sales — all companies with annual revenues of $10 million or more. If you have not reported, filed or paid sales tax in the past, the CDTFA may become suspicious of your accounting practices. After all, constantly postponing the production and payment of your sales taxes doesn`t inspire much confidence. This is especially true if you`ve already been reviewed for a specific issue that you haven`t yet resolved. In general, it is usually in the taxpayer`s best interest to sign the waiver to keep the audit period intact. Work with the auditor to ensure the proper conduct of the audit and minimize the number of deviations required.
They believe that the effort they put into the audit will result in an error in the amount of taxes you paid, so it`s the auditor`s job to go through your data and try to find errors. If they don`t believe they will find mistakes, they cut the bait. However, keep in mind that the law is very complicated and accountants are very good at finding mistakes. So New York`s TVA gives us the opportunity to work with companies of all shapes and sizes: from giant multinational conglomerates to new start-ups in incubators, local churches and charities. States pass hundreds of new tax laws every year, so your indirect tax team should stay on top of the changes and enforce the latest rules and rates as soon as they go into effect. Every time your business launches a new product or introduces a new taxable item or service, it increases your chances of being verified. In situations where the CDTFA deems a tax measure too weak, CDTFA`s headquarters in Sacramento sends these files to the local county office, which then selects companies to audit them. Auditors are trained to apply a number of different indirect audit methods depending on the sector and subject. For example, auditors may conduct a compliance test in which they observe business transactions over one or more days and extrapolate taxable transactions observed during those days to the audit period. Auditors can also perform a purchase mark-up audit, where they receive purchase documentation from the company`s suppliers and then determine a mark-up percentage from the company`s price list or menu. Auditors can then use this information to calculate total revenue for the audit period.
Regardless of the method chosen by an auditor, these methods are inherently inaccurate and often rely on unfounded assumptions. Companies should endeavour to keep adequate records in order to avoid such indirect audit methods. It is not uncommon to report exempt sales, especially in certain industries, but to return to the assumption that all sales are taxable until proven otherwise, a large number of exempt sales or deductions from total sales can trigger an audit. Efforts should also be made to obtain missing, incomplete or invalid resale, exemption or direct payment certificates in support of all duty-free sales. Check the exemption certificates to ensure that the correct form has been provided and completed with all mandatory fields (date, signature, buyer`s name and registration number, description and use of purchase with reason for exemption). This is the time to go back to your customers and get valid certificates if you don`t already have them. Ideally, this would have been done at the time of the transaction to exempt the sale. We hope we`ve given you some useful insight into New York State`s sales and usage tax audit process. We work closely with your accountants and in-house tax staff to achieve the best possible result for your business. Please feel free to contact our national and local tax practice at any time to discuss any questions or issues related to your audit or future tax planning. When reviewing an auditor`s exception list, a vendor must consider several aspects that may require the reviewer to remove the transaction from the list. Here is a list of questions that should be considered: Under the established rules, a business is required to keep adequate records of its sales and purchases.
In this case, it shall have the right to have these records used for its examination. In other words, if a company maintains adequate records, auditors are required to limit their review to those records only. The tax department assumes that a computerized statistical sample of the taxpayer`s files meets this requirement. For example, a business whose total sales amount is different on its sales tax returns and federal tax returns is likely to be audited. The first step in a sales tax check is to be notified by the state that you have been selected for the audit. Once you receive this notification, you can immediately begin preparing for the audit. Instead of raising your hands, this is your first opportunity to take control of the situation. For the period to be audited, you must first collect the relevant records.
This blog post outlines three important things you need to consider in order to successfully collect and prepare your records for a VAT audit. The state`s letter states, “You have been selected for the exam.” Audit requests can be complicated and time-consuming. Advanced indirect tax reporting and analysis software allows you to meet VAT control requirements and generate reports quickly. After assembling the records, you should assess the integrity and completeness of the records to ensure that all months of the monitoring period and all data types are present. If you find gaps in the records, you need to look for this information. Due to the time it may take and taking into account the possible changes to the system or supplier during the relevant period, you should start this process as soon as possible after notification of the audit. No company wants to be audited, but you can use what you`ve learned from experience to improve your business operations and accounting practices. To avoid future monitoring, make sure you understand the red flags that triggered the monitoring. If you are facing another VAT audit, address any issues discovered by the auditor as soon as possible to ensure that the process is quick and does not require a lot of your resources.