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The Hidden Dangers of Non-Sales Deposits: Sales Tax Audit Secrets

Updated: 5 days ago

Updated: June 3, 2024 Here are some tips about how to avoid common issues when non sales related proceeds are deposited into the business’s bank account.



Key Takeaways:


  1. Make sure it is clear what the deposit relates to. Auditors can review bank statements during a sales and use tax audit. If there are unexplained deposits in a business bank account, they can assume that those deposits are additional taxable sales.  


  1. Retain documentation that the deposits are not related to the sales, but some nontaxable event. Common non-sales related deposits include loans, insurance proceeds, etc. Retain a copy of the check, correspondence proving the deposit was a loan or insurance proceeds, etc. The important thing to remember is that sales and use tax compliance is largely about record keeping.  It must be “connect the dots easy” to discern that the deposit has nothing to do with sales.


  1. Know the statute of limitations in the jurisdiction. Retain the documents for the typical 3-4 year statute of limitations. 

 

Our mission to provide a resource so business owners, accountants and bookkeepers can understand sales & use tax compliance. We know that sales and use tax laws are not the easiest to understand. Our focus is on empowering you with a framework and general understanding, so you know what questions to ask and where to go to get the information you need to stay on the right side of sales and use tax compliance.




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