There are three words that can strike terror into the hearts of ecommerce business owners across the US: Sales tax audit. We’ve seen it time and time again — ecommerce business owners don’t know that even if your business is based in one state, you can still receive an audit notice if you meet the nexus requirements for the states you don’t have a physical presence in.
Here’s what to do if you get an audit notice and how to avoid a sales tax audit in the first place.
What is a Sales Tax Audit?
A sales tax audit examines your company’s sales records to see if you’ve paid the right sales tax to a jurisdiction.
During the audit, a tax agent looks at your company’s records to see how much revenue it’s earned and how much sales tax it’s paid.
Why is a State Auditing Your Business?
The state tax agencies that conduct tax audits aren’t doing them for fun (though it may seem that way). Usually, an agency decides to look closer at your company’s revenue and records when it has reason to believe that you owe more tax than you’ve paid.
A state may want to examine your business closely if the sales from your sales tax return don’t match the income tax return you filed with the IRS or that state.
While something usually triggers the audit, like suspected underreporting or a return discrepancy, some audits happen at random.
Your Sales Tax Audit Checklist
Once you get a notification letter from a state about a sales tax audit, the first thing to do is not panic. Audits can be messy, expensive, and annoying. The calmer you are through the process, the smoother it will go and the more likely the decision will be in your favor.
1. Collect Documents
Gather any documents supporting your company’s claim and demonstrate that you paid the appropriate amount of tax. You’ll need sales records, invoices, tax returns, exemption certificates, and financial statements.
Before handing your documents to the state agency, review them and look for any holes or discrepancies. It’s best to fill those holes or figure out the problem before you hand your records over for the sales tax audit.
2. Get Support
Pick one person to act as the point of contact between your company and the auditor. If you’ve been using TaxCloud, you can rely on our tax experts to serve as the go-between for your company and the state tax agency.
No matter who represents your company during the sales tax audit, ensure they always remain respectful and calm around the auditor. Remember, you catch more flies with honey.
3. Be Upfront
You can’t hide from the tax collector. If you notice an issue with your company’s sales tax collection, it’s best to fess up and be honest rather than try to hide it.
Preventing a Sales Tax Audit
An ounce of prevention is worth a … well, you know the cliché. Luckily, you can take action and keep tax auditors off your back. TaxCloud can help. Our sales tax software calculates your state sales tax obligations, collects the right amount of tax, and files your tax returns.
And if your business does catch the eye of a state tax agency, we’ll be right there by your side, supporting you through any audit inquiries or notices.
Stay compliant and keep sales tax audits at bay. Talk to us today to learn more about how TaxCloud works, and how we can support you if or when auditors come calling.