There are many things that small business owners in the state of California need to be aware of to run a successful business. While the main focus for most is of course to make a profit, it is important to not lose sight of peripheral matters that could arise. One of those matters is a sales and use tax audit.
If your business is facing a sales tax audit there are several things you should keep in mind. The first is that if an auditor contacts you, it is important to address the matter in a timely manner. Failing to respond can only make the matter worse and possible result in consequence for noncompliance.
Second, take some time to prepare prior to the audit. You should gather and organize sales and tax payment records. They should extend three or four years back. In situations where a sale is exempt from the tax it is important to provide proof of that. In some situations engage in a practice audit is beneficial as it can identify where required pieces are missing.
It goes without saying that when the real audit roles around it is a good idea to be courteous and cooperate with the auditor.
It is possible that at the end of the process you will not agree with the auditor’s findings. In this situation it may be able to file an appeal. Because the outcome of a sales tax audit can have a great impact on a business it is often a good idea to work with a tax lawyer.
Source: Houston Chronicle, “How to Conduct a Sales & Use Tax Audit,” Fraser Sherman, Accessed Dec. 5, 2014