he sales tax audit, like any other tax audit, does not begin
when an examiner knocks on your office door. It can begin in many ways, like your ex-boyfriend, ex-girlfriend, ex-wife, ex-husband, ex-employee or current disgruntled employee, jilted vendor, disaffected customer, or a competitor get a written or verbal message to some revenue agency. At this point, do you need Sales Tax Audit Help?
It may be that your sales tax return shows gross sales that are less than or more than the “normal range,” or you might have more or less taxable percentage than others in your business code, or you might have been late a couple of times or had a payment that did not clear. You may need sales tax audit help.
It could be that your geographic area has shown a high rate of lack of compliance with other audits or that your business kind has yielded sufficient amount of tax due in other audits.
It might be that you are in a business that normally deals with a lot of cash transactions.
Will You Be Audited – Do You Need Sales Tax Audit Help?
Revenue agencies have a lot of information at hand. They know the volume of electronic transactions for each EIN and have decided what portion of the total sales should be electronic and then they calculate what your total income should be, and maybe you reported less. The same goes for the state knowing how much you bought from various vendors, like alcohol and tobacco, and what that mark up should be and what the total sales should be, and maybe yours was less.
Any of these situations can cause an information report to be created and sent to a section of the revenue agency responsible for determining the businesses to be audited.
The Federal IRS will always send a letter as the first contact, without exception. Any other form of contact is a scam. Call us, and we will contact the IRS or contact them yourself to turn in the scammer.
Sales Tax Audit Help and Use Tax Audits
The rest of this article will deal with Florida sales and use tax audits.
If the assignment group has determined you might be audit-worthy, meaning they might get some of your money, they send the information to a service center near you and the file is assigned to an auditor. The auditor will call you, unlike the IRS. When you get this call, tell the auditor that you believe you need expert representation before you answer any questions, and then call us at Biz Tax Pros with the auditor’s name and phone number and we will take it from there. We will get a power of attorney from you and begin our process.
If you have already spoken to the auditor, the next step will be a letter from him stating the period and scope of the audit, and it will contain a list of items the auditor wants you to provide. The only thing you should do is contact Biz Tax Pros, sign a power of attorney, and let us approach the auditor to handle the details of the audit.
In both of the above cases, remember the saying from World War II, “Loose lips sink ships.” This is war, and anything you say will go against you.
Where is the Audit Conducted?
After we contact the Florida Department of Revenue, we will have the audit conducted in our office. This will enable you to avoid interruptions to your daily business operation and have your employees or yourself pulled off your normal activities, thereby saving you the cost of lost production or increased expense.
We will reach an agreement with the auditor as to the items to be examined and how the results of that sample will be used to project overpayments or underpayments of tax. We will then obtain the documents necessary to complete the examination from you and sit with the auditor as the documents are being reviewed.
We will review the documents before the auditor starts the examination phase of the audit and be prepared for anything the auditor might discover, and we will have covered those with you and repaired any items that can be repaired. We’ll instruct you as to the proper procedure to follow in telling the auditor that we have already corrected that issue if, in fact, the auditor discovers it.
Who is Experienced to Work with a Sales Tax Auditor?
Because of our experience with may audits and auditors in the past, we are aware of the standard tactics taken by the Department’s auditors. We know they are conditioned to work with taxpayers, business owners, and managers who know their business but little or nothing about tax law. You may have studied how you should charge, collect and remit taxes but do not know what vendors should be charging you tax on your purchases. The audit is about tax not just on sales, but also on use and purchases. The auditors are also accustomed to working with CPAs or other accounting or bookkeeping personnel who know their business of keeping books per the requirements of the IRS and federal income tax code but who also know very little about state sales taxes. They just have no education on and little experience with sales tax law and compliance audit procedures.
We will work very closely with your CPA or other types of accountants, not only because it is a good idea to keep them in the loop due to having to account for any potential tax due, but out of necessity. They are the people who know what is in your books, the adjusting entries, and how various transactions were handled in the accounting records.
We will compare the reports and tax returns to ensure that they all agree because the sales tax auditor will use the highest figures from various documents and the reports with the most assets or expense to base their assessment. If we find variances, we will explore the reasons, and either has the problem resolved before the auditor arrives or have notes about the reconciling reasons.
What is the Auditor Looking for?
We are aware that auditors often pick up the same item from several documents merely because one may be posted with amounts rounded, or some may be batched together, or perhaps a different description was used on different documents.
Sales tax auditors often assess on form over substance. This means they will tax a transaction because of the way it is posted, the account charged in your records, ignoring the actual use or purpose of the transaction. While these may not affect your taxable income for income tax purposes, during a sales tax audit, it can matter greatly if non-taxable costs of goods are posted as taxable expenses, or if capital assets are treated as expense items.
During the audit, we will prevent the auditor from improperly taxing transactions and from any misuse or abuse of the procedures for determining errors.
Protection From Improper Taxation
We will review the auditor’s findings and assumptions on a regular basis and review a draft of his proposed audit report, and will set up meetings with the auditor’s superiors if we do not agree with anything of substance in the report.
If during the process of the audit, we find that we do not agree with the auditor’s or the supervisor’s application of the law, we will issue a Request for Technical Assistance, or legal opinion from the Department of Revenue’s legal section.
If all attempts to resolve the audit in the field have been exhausted and we still do not agree, when the Notice of Proposed Assessment is issued we will prepare a legal protest and appeal with the Technical Assistance and Dispute Resolution Office. The Department will assign an attorney to their office to oversee a Tax Law Specialist in his review of our protest and who will read a draft of the Notice of Decision before it is issued to us.
The Protest Phase of the Audit
During the protest phase of the audit, we will research and state all court cases and prior Notices of Decision, Audit Procedural Bulletins, Technical Advisement Letters and any other items that reflect the Department’s position and the outcome involved with similar cases.
We will evaluate the cost and advantage of proceeding to the next level, such as protest or going to court, and advise you about our opinion on the cost-effectiveness of going ahead or ending and reaching a compromise that may be less than ideal.
In every level of the audit, we represent you and are bound by your decisions. We are here to give you the information you need to make informed decisions.
Sales Tax Audit Help – Biz Tax Pros
If you decide to take your case beyond the Department of Revenue and to pursue the matter legally, you have two options: We can petition for a Florida Administrative Judge to hear your arguments in an administrative hearing, or we can take your case to court. If we opt for an administrative hearing, we will handle the matter throughout the negotiations and the final decision. If you prefer to go to court, because Florida has no tax court, your case will be heard in the Circuit Court. You will need an attorney to take your audit for that procedure. We will assist you in finding an attorney and will work with that attorney advising them of the Florida statutes, Florida Administrative Code, audit policy, and procedures, and non-court published past decisions. The attorney will be there to litigate, and we will still be your tax expert representatives.