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The Shocking Reasons Why Businesses Are Audited For Sales Tax

Updated: June 20, 2024 Here are just a few reasons why businesses are scheduled to be audited by the taxing authority.





Key Takeaways:


  1. The Tax Laws and Rules are confusing and the taxing authority knows it: The taxing authority knows that sales and use tax laws and rules can be very difficult to follow, especially when dealing with services. If they know that a lot of businesses get it wrong, they are going to audit those types of businesses. 

  2. Your customer was audited: The taxing authority may have audited your customers and noticed that your business did not charge tax appropriately. In Texas, this is called an audit lead. The thought is that if you didn’t charge that customer tax correctly, you probably made the same mistake on all your sales.

  3. Random: This is the reason that drives most business owners crazy. The audit can be completely random. It could be the auditor saw a sign for your business and it is located near their home. It could be that someone turned in your business. It could be that they are tired of auditing contractors and want to go to a nice part of town to audit a business with a posh location. Sometimes, it is a random thing. The Taxman can come at any time. There are red flags (like not reporting any taxable purchases) that business owners do that can increase their chance for audit. But some things (like those mentioned above) are completely out of their control.  It is best to be prepared just in case. That means retaining your sales and use tax return work-papers, confirming the taxability treatment of your sales, verifying the correct tax rate is being charged, obtaining, and retaining any required documents relating to tax exempt sales, journal entries, fixed assets, taxable purchases, etc.

 

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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