Everything you need to stay prepared and ensure a successful audit.

Chapter 8

Sales Tax Audit Checklist

Pre-Audit Assessment: 4 Areas to Review

  • Nexus
  • Fixed Assets
  • Use Tax Accruals and Sales Tax Payable Account
  • Exemption Certificates

Preparing for an Audit of Sales Tax Exemption Certificates

Here’s a handy checklist you can download created by Avalara to assist you in evaluating your readiness for an audit of your exemption certificates.

Preparing for a Sales Tax Audit: 4 Essential Steps

Maintaining audit preparedness is much easier than preparing from scratch each time a state sends you an audit letter. Regularly reviewing these four items will keep your tax system up to date.

  • Review the minutes of the Board of Directors and executive committee meetings to identify and plan for significant plant expansions, purchases, contractions or company reorganizations.
  • Review exempt and resale exemption certificates to ensure that they are complete and in proper form.
  • Review company depreciation schedules for any “big-ticket” items. This will ensure that sales/use tax was either paid or use tax accrued on the purchase (assuming it was taxable).
  • Document tax positions taken on gray or ambiguous areas of the law while memories are fresh. The memos and supporting statutes, regulations and cases should be stored in a permanent file.

7 Items to Keep in Your Permanent Sales Tax Files

  • Legal entity being audited
  • Audit period
  • The state that is being audited
  • Auditor name and contact information
  • Initial audit assessment
  • Final audit assessment
  • Notes discussing the largest items identified under audit and other areas in which improvement is needed to reduce future tax liabilities

11 Things You Should Know Before You Ever Commit to an Audit Start Date

Coordinating an audit can be complex. Taking care of these eleven items before setting an audit date will make the process more manageable.

  • The scope of the audit
  • Whether you have the personnel available to obtain and provide the information requested
  • The availability of suitable office space
  • The schedule of other ongoing audits
  • Audit location (where the auditor wants to perform the on-site review of documents)
  • Whether a consultant will be used and their availability
  • Applicable statute of limitations
  • Whether the auditor is traveling (could be helpful to know how many days they’ve allocated for their visit)
  • Whether the audit raises sensitive exposure concerns (large acquisitions during audit period, nexus issues, exemption certificate issues, etc.)
  • What the sampling procedures will be
  • Who your Audit Coordinator will be

3 Steps to Claiming a Sales Tax Refund or Credit

The steps for claiming a sales tax refund or credit vary greatly by state, but the most common procedures include:

  • Adjusting the sales reported or tax due (or taking a credit) on a following return
  • Amending the original return(s)
  • Filing a separate refund claim either by letter or specific form

3 Signs You Should Hire Outside Audit Consultants

Managing an audit with just your internal team can be a challenge. Consider getting audit representation if any of the following conditions exists:

  • You’ve never been audited before. An experienced representative will help you prepare and cut down the time it takes to resolve the audit.
  • The timeline is advancing quickly. Should the state provide an aggressive timeline to begin the audit (less than a month), you will need help preparing for it. Outsourcing will save you time and money in the long run.
  • Your team is already busy. If you don’t have a person internally who can be your Audit Coordinator and/or can’t spare enough competent staff members to do a pre-audit review and deal with the auditor while he or she is onsite, you should consider hiring outside consultants. A pre-audit review is highly recommended, so that you know what you are dealing with before the audit begins.