When a taxing authority performs a sales and use tax audit, their primary audit objectives are to review the taxpayer’s purchases and assess tax on underreported purchases subject to use tax and on the sales side, to review the taxpayer’s claimed exempt sales and assess tax on unsupported claimed exempt sales. While the principles discussed below can be applied in part to sales, the focus here will be on the purchase side of the review. The objective of such a review is for a company to determine before or during an audit whether they may have some errors in their favor that might lead to a refund.
As noted, the state auditor is generally testing purchases to determine the amount of unreported purchases subject to use tax. A “reverse audit” takes a more holistic approach by identifying under and over payments of tax as well as the root cause of those errors. The following text describes at a high level the primary steps of a reverse audit, and why your company might benefit from one
Data Acquisition and Initial Review
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