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What is a sales tax audit?

On: April 24, 2020

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Being a business owner in California means having to deal with sales tax, and quite possibly a sales tax audit.  Sales tax is the tax collected on goods that are sold in a business for the taxing agencies. In California, the basic sales tax is 7.25 percent. Having to deal with sales tax means that you will inevitably end up dealing with a sales tax audit.  Going forward, here is what a sales tax audit is and what you should know about them should the day for one ever come. They aren’t the end of the world, but a sales tax audit can be a lot of trouble if you don’t know what to expect. What is a sales tax audit? You’ll first receive a package from the state or IRS alerting you that you have been selected for a sales tax audit. Don’t panic. While it may seem like a scary thing, audits are a normal part of the taxing process and can be triggered by a number of reasons. Some audits are random or for businesses within a certain demographic, meaning that your audit could just be because of chance, not because you did anything wrong. Sales tax audits are looking at the sales tax that you have reported from anywhere from last month to three years ago, meaning that you should have at least four years of records to go back to in case an audit happens. Most agencies in California require that you have at least four years of records anyway. 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. Not only do you pay to the BOE, but they have the ability to audit you and your business at any time for any number of reasons. Businesses, where cash transactions make up a large portion of sales, are a natural target for an audit, as are companies that deal with a large number of exempt sales. If your industry has a reputation for tax irregularities, it is probably only a matter of time before you get audited. What happens when I am audited? After being notified that you are going to be audited, make sure to get all the documents required and make sure that everything is in order. Aside from the documents that are asked for, the auditor may look at any and all other necessary documents that they choose to during the process. Making sure you have a solid record-keeping system that has all the sales tax-related items should be something you start before you ever see the audit process, as it will come in handy for all aspects of your business. Audits aren’t something that you should spend every waking moment fearing, but making sure that all deadlines are met and that you run your business in accordance with all the tax laws and regulations will make your life a heck of a lot easier.

Always make sure to call Leading Tax Group and don’t attempt to do it yourself.

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