Sales Tax Audits 101

A sales tax audit is like a rite of passage. Your company will likely go through one at some point, even if you’re doing everything right. How stressful a sales tax audit is depends largely on how well you’ve prepared for it.

Remember, getting selected for an audit doesn’t reflect your business’s morals or character. In many cases, it’s just a state checking in to confirm you’ve dotted all your I’s, crossed all your T’s, and paid all the tax you owe.

Direct Audits

Your business may owe sales tax in a state where you have a physical presence or economic nexus (aka connection). If your business has no presence in a state, you’ll generally not need to collect or pay sales tax there.

It seems easy-peasy, but it’s not. States can have differing rules for physical presence and different thresholds for economic nexus. Mess one of those up, and a state may come a-knocking with a direct audit.

We’ve broken down all you need to know to get through a direct audit, including:

• How to prepare
• How to treat the auditor (be nice!)
• What documents you need
• What sampling is
• How to appeal
• What happens next

Streamlined Audits

The Streamlined Sales and Use Tax Agreement exists to make everyone’s sales tax lives a little easier, especially in a post-South Dakota vs. Wayfair world. Twenty-four states are full members of the Streamlined Sales Tax Governing Board and have passed legislation to make sales tax a little easier.

Some of the protections passed by Streamlined states include liability relief if a business doesn’t collect the right tax amount because of a data error from the state or an error made by certified sales tax software.

If your business uses TaxCloud, you get extra audit support in Streamlined states. We’re a Certified Service Provider (CSP), which means we have an agreement with each of the Streamlined states (and Pennsylvania).

Those states can audit our records to ensure we collect, calculate, and report the correct sales tax amount. Often, the audits occur on a three-year cycle, but only some states audit us every three years.

Since we’re the company getting audited in this case, your business may not need to get involved at all. However, there may be instances when we must contact you to get some information to make the audit go smoothly. We may need to request the following:

• Product mapping and descriptions
• Purchaser’s addresses
• Invoices
• Return records
• Exemption certificates

Having those documents and information handy and well-organized will help the audit go smoothly and may reduce the need for us to make a special request of your business.

TaxCloud Helps Ease Audit Pain

No one wants to be audited, but the process doesn’t have to be the stuff of nightmares. Using our certified sales tax software means you can be confident that the correct amount of tax is collected in each state for each transaction, reducing the risk of an audit.

And, thanks to the Streamlined Sales and Use Tax Agreement and our status as a CSP, your business has liability protections if an error in our sales tax calculations triggers the audit.

TaxCloud can be right by your side, keeping audits at bay or taking the heat for your business if an audit does occur. Contact us today to learn more.