What Is a Board of Equalization Audit?

On: July 10, 2020

The administration and collection of many non-income taxes and fees for the state of California are assigned to The California Board of Equalization (BOE). It is one of the government agencies responsible for collecting and enforcing the state’s tax laws. As many of these taxes and fees are an essential part of the state revenue stream, enforcement of the collection of these taxes is a consequential phase of the BOE’s duties. Most of the taxes the BOE administers are collected from businesses. Every business owner doing business in California must make themselves aware of the BOE audit process. In fact, some businesses are audited every three years. Several factors can increase your business’ chance of being the target of an audit. These include:

• Large transactions
• Large tax-exempt sales
• Doing business with an industry that has a reputation for tax irregularities
• Being involved with a vendor who violates the tax laws
• Selling your business or going out of business
• History of tax troubles or being late or irregular with your tax payments

The Initial Audit Process

You will receive a call from the BOE auditor if your business is scheduled for a sales tax audit. The auditor will probably lay out the purpose and terms of the audit, asks for a meeting, and will give you the details of the records and documents you will be needing. Audit calls mostly help your business in the long run. Good professional relations with the auditor, as well as proper preparation, are important. You can ask for and probably receive a two- or three-week extension to collect the required materials and documents. Asking for any more time than that will likely result in extending the time frame in which the BOE can assess you.

Audit Preparation

After collecting the required documents, you can expect to be asked to provide more documents. The most commonly requested documents include:

• A general ledger
• Sales and tax returns and worksheets
• State and federal income tax returns
• Sales and purchase invoices
• Till receipts
• Supporting documentation such as exempt sales, resale certificates or freight bills.

Always maintain a professional relationship with the auditor as it will work in your favor.

The Audit Itself

An auditor is mainly looking for some mistakes and oversights or evidence of dishonesty and misrepresentations. Most audits begin with a comparison of your books and ledgers with the tax returns you have filed for the time under investigation. This may result in a more detailed examination. Depending on your type of business, undercover investigations may be done.

The Post Audit Process

After the final conclusion of the audit examination, the BOE auditor will schedule an exit conference with you to go over the findings of the audit, and explain any additional fees or taxes to be imposed, or additional refunds due.  If you disagree with the finding of the audit, you still have the option to discuss the findings with the audit supervisor, and if still in disagreement, to have a more formal discussion with a BOE representative. If you still disagree with the final findings of the audit, you must appeal by filing a Petition for Redetermination within the same 30-day period discussed above. Once the petition is filed, you are not required to pay the sales tax, interest, or penalties until your appeal has been decided. But, keep in mind that the BOE appeals process is long and involved; thus, interest will continue to grow. Hire an experienced tax appeals attorney to have the best chance of success.  And always make sure to call Leading Tax Group and don’t attempt to do it yourself.