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How to prepare for a sales tax audit

On: May 29, 2020

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In California, a sales tax audit is something that businesses of all sizes will run into at some point. While a sales tax audit looks at all matters related to sales tax, auditors can look at other facets of your company to make sure that you are doing everything correctly and paying everyone who needs to be paid on time. While auditors are certainly not your friend, there is no need to start panicking. If you are thoughtful and careful about your business then you should be in the clear, but here are some things you should do to prepare for a sales tax audit. How do I prepare for a sales tax audit? When you first learn that you are being audited, make sure not to panic. It’s not the end of the world or your business when you are audited, but it can amount to a lot of fines that you probably don’t want to pay. First, get all the documents that are being requested and make sure that all the information is complete. Sales tax audits are looking at the sales tax that you have reported from anywhere from last month to four years ago, meaning that you should have at least four years of records to go back to in case an audit happens. Most taxing agencies in California require that you have at least four years of records at the bare minimum. Some of the documents requested may include a general ledger, journal entries, sales and purchase journals, invoices, bank statements, resale and exemption certificates, financial statements, federal tax returns, sales and use tax returns and work papers, and shipping documentation. The California State Board of Equalization (BOE) is the government body charged with administering, collecting and enforcing the California tax code. The BOE is the body that regularly conducts audits to ensure that businesses are correctly collecting, recording, reporting and paying sales and use tax. You’ll also want to make sure to contact legal representation to help you through the process, as they have been through it many times and can offer valuable advice. Make sure to call Leading Tax Group and don’t attempt to do it yourself. What else do I need to know? Auditors are not your friends and are looking for ways that you have messed up. Money from sales tax goes toward roads and other necessary services in the state, which incentivizes auditors to make sure that every dime the state is owed the state is paid. When the time comes for an audit, the process will take a little bit of time, but basically, the auditor is matching what you have provided to the state with your records to ensure that everything matches up and is accurate. They will then compile a report that you can read and raise any questions or disagreements about their findings to make sure that everything is in order. If you have been doing things correctly, then you should walk away with little damage, but if not, you can expect some hefty fines or worse. Always make sure to call Leading Tax Group and don’t attempt to do it yourself.
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