If you are a business owner and sell items, no matter if it’s in a store or online, you know there is this thing called sales taxes which you need to be in compliance with. Sometimes the IRS decides to do what is called a Sales Tax audit on business. If you receive a notice in the mail, don’t panic. Stressing over it doesn’t help at all ant it blocks you from think clearly. You have to act rationally and deal with the matter at hand as effectively and efficiently as possible. Keep in mind that this is mostly a documentary process conducted via mail so the chances are you may not even meet somebody from the IRS.
What Is a Sales Tax?
A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer, and passed on to the government. A business is liable for sales taxes in a given jurisdiction if it has a nexus there, which can be a brick-and-mortar location, an employee, an affiliate, or some other presence, depending on the laws in that jurisdiction.
What is a sales tax audit?
A sales tax audit is the examination of a company’s financial documents by a government’s tax agency to verify if the proper amount of sales tax has been remitted to the proper authority. Only about 1.1% of individual taxpayers receive an audit letter every year.
If you find yourself in the unfortunate 1.1%, what should you do?
Talk to the experts. Companies like TaxConnex use their years of experience in sales tax audit so you get all the know-how, all the backup, and none of the risk. Having TaxConnex™ act as the intermediary between you and the auditor provides several benefits:
- TaxConnex™ will conduct a pre-audit review of your systems and processes to identify any gaps or risk factors.
- We will control what information gets shared with the auditor. “Let me get with my client and get back to you on that” is a perfectly acceptable answer.
- TaxConnex™ will advise you as to where to push back and where to compromise.
- We will help determine the best audit approach – whether it’s a block or sampling approach.
TaxConnex will make sure you follow sales tax compliance as you will need to prepare and file using sales tax software and do your sales tax filing for you. Depending on which state you are in will determine your sales tax regulations as each state is different depending on the type of nexus so they take the headache of figuring this all out for you. I know a lot of states have a sales tax act is a tax paid to a governing body for the sales of certain goods and services.
Usually, laws allow the seller to collect funds for the tax from the consumer at the point of purchase. Are you aware of the Wayfair act? This was brought about as a business in a state that makes a profit to be able to charge sales tax. The Wayfair sales tax case happened on June 21, 2018, The United States Supreme Court ruled 5-4 in South Dakota v. Wayfair that states can mandate that businesses without a physical presence in a state with more than 200 transactions or $100,000 in-state sales collect and remit sales taxes on transactions in the state. This decision overturned the Court’s 1992 decision in Quill v. North Dakota and 1967 decision in National Bellas Hess.
A couple of tips
- Don’t panic
- Call the experts
- Every letter from the IRS isn’t necessarily an audit
- Submitting an amendment does not mean you will increase you chances of being audit -if you spot a mistake correct it
- Most audits are conducted via mail – you might not even meet somebody from the IRS
- A lot of articles in this area suggest businesses which deal a lot in cash, bars, restaurants, etc are more prone to audits to ensure controls around cash and reporting are operating effectively.
- Research suggests that if you sell outside of your own state is increases your likelihood of sales tax audit
- Expect the auditor to use some form of sampling method around your data
- Don’t evade taxes that are legally due
- The auditor is not the enemy they are only doing their job.
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