Over the next several weeks we will post five blogs that should interest any taxpayer who is in fear of a sales and use tax audit – especially an audit that results in a “huge, unexpected liability.” These five blogs will help prepare you for all aspects of a sales tax audit by a government agency (before, during and after) and, more importantly, will help to put you on a path to owe little or nothing (you might even get a refund) – particularly if you follow the second of the five blogs, where we’ll talk about shoring up your systems before an auditor even shows up.
The advice that we will provide in these five blogs will apply to a sales and use tax audit for any state, but we will focus many specifics on our home state: the Golden State of California. California’s sales and use tax department is called the CDTFA – California Tax and Fee Administration. (The CDTFA was established in January 2018 as the successor to the State Board of Equalization or SBE.) The CDTFA is an enormous governmental agency – the size and sophistication of the CDTFA almost single-handedly dwarfs many of the U.S. states’ entire governments. The CDTFA administers 37 tax and fee programs; employs thousands of auditors and generates more than $90 billion for California and its counties, cities, and special tax districts. The CDTFA’s audits result in over $600 million of unreported tax each year. So, what can we do to help you to not be one of those taxpayers that contribute to the $600 million in audit deficiencies? It’s simple – read this blog and the next four.
Already in an audit situation? Have you received a notice from the CDTFA or other state agency? Reach out now at firstname.lastname@example.org or 408-266-2259.
This first blog is an overview of what we will cover in far more detail in the next four blogs. Here’s the overview.
Second Blog – “The Self Audit” – In this blog we will detail how you ensure that you do not have a bad audit – that “huge, unexpected liability.” We call this blog the Mini Sales and Use Tax Audit (“MSUTA) or the self-audit. Much like an annual health physical, the MSUTA is done annually to ensure that your company’s sales and use tax reporting program is healthy. The MSUTA, like a physical, consists of tests, analysis of the results of the tests, and a prescription for improving weaknesses and maintaining strengths. We recommend that you do the MSUTAs every year to ensure that you aren’t slipping into bad habits and that you are recognizing changes to your business operations, personnel, product lines, purchasing habits, and changes in the law that could weaken your sales and use tax health. Of course, we recommend that your first MSUTA should be done in conjunction with a professional, an expert in sales and use tax, and then you can do your own MSUTAs each year unless there are significant changes in your operations.
Third Blog – “The Pre-Audit” – In this blog we will cover what you do when you receive the letter that your company has been selected for a sales and use tax audit. We discuss everything that you should and should not do before the audit starts. We call this the Pre-Audit. It’s a Pre-Audit because the auditor’s letter is nothing more than a signal to “circle your wagons” and call a professional in sales and use tax, like Miles Consulting Group (“MCG”). In this blog we will walk you through what the auditor wants you to do and what your representative wants you to do – we will talk about both in detail. If you just received an audit letter then we recommend the following: stop, breathe, don’t talk to the auditor and call an expert in sales and use tax. What you say to an auditor is like that proverbial bell – once it is rung it cannot be un-rung. Don’t talk to the auditor without representation, allow your team to help you.
Fourth Blog – “Audit in Process” – You have hired your representative, your representative has reviewed your books and records, understands your business and understands how you have reported your sales and use taxes over the audit period. Your representative, let’s call them MCG, knows the strengths and possible weaknesses of your sales and use tax reporting (if you were doing annual MSUTAs you’re less likely to have any weaknesses) and is ready to have that first meeting with the auditor. In this blog we will go into greater detail about what you should expect in a sales and use tax audit from the first meeting, to the audit plan, the various tests of the books and records (statistical sampling, block samples and actual basis exams), the negotiations that take place before the audit is concluded and then the issuance of the final audit report. We will cover it all in this blog.
Fifth Blog – “Post Audit” – In this blog we will discuss the audit findings and what your options are if the results are not to your liking. We will focus on the CDTFA’s appeals process which has several levels starting with the auditor, audit supervisor, principal auditor, etc. We will discuss the significance of waivers of the statute of limitations, notices of determination, claims for refund, petitions for redeterminations, appeals conferences, settlement negotiations and appeals to a separate department called the Office of Tax Appeals. And then, we take you back to the beginning – to the MSUTA – it’s the key to making sure that your next audit will have a great outcome. There is no question that if your audit outcome was a “huge, unexpected liability” that the CDTFA (or other state Department of Revenue) will audit you again, so we need to get you ready and ensure that you have a fantastic audit result.
Have a question? Contact Monika Miles And Team.
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