What Is a Cali Department of Tax and Fee Admin Audit?

On: July 24, 2020

California Department of Tax and Fee Administration (CDTFA) was introduced by the Taxpayer Transparency and Fairness Act of 2017, which divided the State Board of Equalization (BOE) into three separate bodies: the BOE, the CDTFA, and the Office of Tax Appeals (OTA). In California, sales taxes are collected by the California Department of Tax and Fee Administration (CDTFA) formerly the State Board of Equalization (BOE).

Preliminary Examination

Preliminary examination by a CDTFA sales tax auditor will generally include comparing the total sales recorded on the taxpayer’s books to the total sales reported on the taxpayer’s sales tax returns and income tax returns; comparing the sales tax reimbursement, the taxpayer collected to the tax reported on the returns and then comparing the claimed sales for resale to resale certificates.

The Audit Preparation

If your business happens to be selected for audit, the CDTFA will employ a wide variety of different strategies and techniques depending on the industry of the company being audited in general. If you find yourself being audited, the CDTFA will require the following records from you:

• Accounting books
• Tax return copies
• Supportive documents like bank statements, receipts, invoices, and contracts.
• Claimed exempt sales documents

The Audit Itself

The general ledger accounts may be checked for debits and credits, which may represent unreported taxable transactions. California State Board of Equalization auditors is instructed to inspect general journal entries noting those which may indicate unreported taxable transactions. California State Board of Equalization auditors may also analyze invoices, contracts, correspondence, and other documents to determine whether the entry represents an unreported taxable transaction. The cash receipts record may also be examined to determine that receipts from cash transactions have been credited to the proper sales or revenue accounts. All the accounts connected with the owners, partners, or employees of the company may be scrutinized, too, for evidence of taxable transactions not otherwise recorded in the sales or revenue accounts. Business partners’ drawing accounts and employees’ advance accounts may be checked into. Entries made in the purchase journal may also be scrutinized for taxable transactions. State Board of Equalization auditors is instructed to calculate a mark-up based on current purchase invoices also. In case of absence of any valid resale documentation, the auditor may determine that the seller is eligible to use the Form BOE-504 series of forms (called “XYZ” Letters) procedure to help them in proving that a sale was not at retail even though a valid resale certificate was not obtained or to prove the authentication of a claim that the customer paid the tax directly to the state.

The Post Audit Process

When the California Sales Tax audit is complete, the State Board of Equalization auditor will schedule an exit conference with you. At this conference, the auditor will probably explain any proposed refunds or additional taxes or let you know that the returns have been accepted as filed.  If you still disagree with the audit findings, the auditor will tell the supervisor that you want to discuss the findings, and the supervisor will call you to schedule a meeting. If the report states that you still do not agree with the audit results, you will receive a letter that gives you ten days to make an appointment for negotiation with the Board representative mentioned in the letter. If the case remains unresolved, you will be issued a “Notice of Determination.” You will have 30 days to file a petition against the audit report. And if you need help, always make sure to call Leading Tax Group and don’t attempt to do it yourself.