5 Sales Tax Audit Tips for Retailers

Auditing small business can be time-consuming and sometimes frustrating, but it depends on its results – it may take some hours of your precious time. If you are charged late and audit shows that you owe extra taxes, then you might be looking at some high change. Its cost can be lower as some hundred dollars but also can be a thousand dollars or more. The higher monetary penalties are more than enough to force small businesses to close down. For this reason, it is very important to stay organized and well-educated about the procedure.


The best method to reduce this stress surrounding the tax audits and risk of the unexpected tax bill will understand the rules & keep the tax records complete and accurate. In this guide, we will cover the top 5 best practices to avoid a sales tax audit. Continue reading to know more about what you must do – or what you must not do – and stay compliant.

Register to all states

For the starters, you will have to make sure you have registered to collect the sales tax where the tax is due. It means knowing sale tax nexus rules of states where you are doing the business. State, where the business is located, can be the definite requirement. You should register with the home state before you collect sales tax on the taxable sales there. When you have registered, you are issued the state’s version of the Retail Sales Certificate that you are needed to place in the visible location. Suppose you have one or more locations, you will generally have to register each of them separately.

Collecting tax without condition

Suppose you sell over the state lines, certain things get a bit murky. It is true for retailers online. Some of the states where you will make the sales can have the threshold number of revenue or sales from the sales every year above which sales tax nexus is established. Some states will not need you to register or collect any tax without conditions like inventory held in a state or affiliate relationship with somebody who lives in a state.

Review assessment & appeal if required 

When an audit is done, the auditor issues the assessment. Suppose you agree, just pay the assessment & move on. Suppose assessment relates to the tricky tax rule, review an actual statute behind this rule to ensure that there is not any misinterpretation. The bottom line is if you don’t agree with any assessment, follow state’s guidelines for the appeal. Suppose you feel over your head, take the advice of the tax advisor and lawyer that is experienced with the indirect tax matters that will help you get the right outcome and can allow you to get back in managing the business. No matter whether you appeal the assessment or not, but, make changes to the business that are required to avoid any future assessments.

File sales tax on right time 

Not just do you incur fees and penalties when you do not file the sales tax by its deadline, you increase the risk of eventual audit. Whenever you register the business with the Department of Revenue for collecting the tax, you are assigned filing frequency based overestimated revenue. Most of the small businesses are needed to file the returns or pay the sales tax quarterly or monthly. The majority of the deadlines fall on and around 20th of a month with an end of the filing period and after you reach some level of volume, the major bonuses for using the automated sales-tax nexus filing program are knowing all deadlines are met and discounts are safe.

Calculate and Report the taxes correctly

It might sound like no brainer; however, many times companies get in trouble and complicate audit processes whenever they have any errors in the calculation or else reporting of the sales & use tax. No matter whether you have minor errors in the transactions, such as charging the wrong rate on the single invoice, or severe blunder, such as failing to remit the taxes, which were collected, audit procedure changes dramatically when the auditor believes there is a reason to probe. Begin by assessing the tax responsibilities and do not forego research needed to do this correctly. 

Bottom Line 

Suppose you receive the sales or use audit request, remember auditors are reasonable. Suppose you get an assessment, ensure that you implement changes required to address errors that are found in an audit so your business doesn’t receive the same assessment, and stiffer penalties, ahead.

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