One of the last things as a business owner which you want to hear is that your business or company has been selected to undergo a sales tax audit. People need help with sales tax audit, sometimes they do it on their own and sometimes they hire a professional to do the work for them. Being audited can be scary and can make or break your business or company.
But instead of feeling that you can’t do anything, there are certain steps which you can take to manage this sales tax audit and take control of the whole process. There are three mains steps which you need to follow to be prepared for a sales tax audit. They are as follows:
- Know what you need to gather for the audit
The first thing you need to do is make sure that you have all the requested records and documents regarding all the transaction with you available for the audit period. If these records are stored in some warehouse or some off-site then you need make sure that you are able to get a hold of the records as soon as you can. Sometimes the records are inaccessible so work on that process immediately.
You need to compile all the records, evaluate condition and the completion of the records for the audit beforehand. If there are some holes in the records, then track down information regarding it immediately.
Some of the records or documents which you need to have with you during a sales tax audit are:
- Journal entries
- Detailed general ledger
- Financial statements
- Depreciation schedules
- Sales and purchase journals
- Bank statements
- Shipping documentation
- Resale and exemption certificates
- Federal tax returns
- Sales and purchase invoices
- Sales and use tax returns and some work papers related to it
- Identify any issues with your records
After you have gathered all the required records which are mentioned above for the sales tax audit, and reviewed them then you can start identifying any issues in it. If these issues are found during the audit, then it can cause a lot of legal problems for you and your company as well. So, it is better to check for those beforehand only.
All these processes should be done prior to the arrival of the sales tax auditor and you need to discuss this with the auditor during the determination of the audit procedure as well.
Some of these issues are:
- Change in tax maintenance
- Missing records
- Electronic records
- Change in accounting systems
To check out the reasons for the issues, you can get access to authorization, check the security codes, check the system access and the data logs, security of data integrity, etc.
- Review the Records before the Sales Tax Audit
Once you have located the records, you need to have a brief review of its which is advisable for you to help identify any major exposure areas. Also make an effort to find out or obtain any of the missing or incomplete data related to resale, exemption or the direct pay certificates which can help support the tax-free sales for you.
You can also hire or consult a professional to review the records for you and find any problems or issue with it. The professional can also help you to resolve any issues with your records.
If you have done all the above-mentioned steps properly then you can say that you are fully prepared for a sales tax audit.
