One of our team members sat in on the Michigan Department of Treasury’s MI sales & use tax audit webinar to provide this short summary for your reference. Here are some tips to make your audit process easier and less painful!
Understand Your Basic Responsibilities
If you’ve already been selected for an audit and are familiar with your tax-collection responsibilities, skip ahead. For everyone else, it is important to know that sales & use tax collection is your obligation. When you don’t collect sales & use tax the liability falls on you. Even though customers commonly pay sales taxes, the selling business is the one responsible for adequately collecting and remitting sales taxes. (If you need help with sales tax compliance, reach out to one of our tax experts here.)
Fortunately, MI is an easier state to deal with sales and use tax. They only have the 6% rate for the entire state with no local rates, and their online platform MTO (Michigan Tax Online) is helpful and can make the process much easier! (Read about the benefits of MTO and refresh on general MI sales and use tax tips here.)
Why Did I Get Picked For An Audit?
When you receive a sales and use tax audit notice in the mail, it sparks worry, concern and anxiety. Frequently, the first question that comes to mind is “What triggered this sales and use tax audit?” Understanding the sales and use tax audit triggers or cause of the audit can help companies both prepare for the audit by predicting what the auditor will be looking for, as well as take steps to avoid sales and use tax audits in the future.
Similar to the IRS with income tax audits, states have systems, policies and procedures in place that help them to identify businesses to select for a sales and use tax audit. While each state’s methodology is different, there are some common reasons taxpayers are flagged for a sales and use tax audit.
12 COMMON SALES AND USE TAX AUDIT TRIGGERS
Our analysis of common sales and use tax audit triggers is based upon 15 years’ worth of sales and use tax audit defense and representation services that we have provided to hundreds of taxpayers across the U.S. We have arranged these reasons in order of the likelihood of triggering a sales and use tax audit.
The state of Florida provides several sales & use tax exemptions for medical purchases made by hospitals and health care facilities. One exemption that provides an opportunity for sales & use tax savings applies to purchases that are required to be issued under a physician’s prescription and are only used for one patient. This is often referred to as the prescription-required single-use exemption for hospitals, surgical centers or other healthcare establishments.