INTELLIGENT TECHNOLOGIES, INC’S NEWS & TIPS BLOG
Sales Tax Audits Uncovered. Are You Raising Red Flags?
Laura-Square
Laura Schomaker, Marketing Associate
March 21, 2017

If you’re like most business leaders, the idea of a tax audit strikes fear deep in your heart. While crossing your fingers and hoping you don’t get picked is a popular strategy for avoiding an audit, it’s not the best. The scary truth uncovered by Avalara’s new sales tax audit guide is that in some cases, simply doing what you do, can be enough to attract an auditor’s attention. In fact, I bet you would be surprised to learn that:

 

  • One third of all audits are done out-of-state
  • Four industries account for 60% of all audits.
  • Mishandling exempt sales and out-of-state purchases are the errors most often found during audits.

 

Unless you’ve had the misfortune of going through an audit before, you probably would have no idea what to expect. Or, even why the state would be looking at you. Your natural assumption would probably be that you’d been chosen at random. While this may be the case, often something you have done (or not done) has raised a red flag.

 

To understand why some businesses are audited more than others, Avalara joined forces with Peisner and Johnson. Together, they created a new guide, “Sales Tax and Use Audits Uncovered.” The tax audit guide looks at real data from 64,000 audits conducted over a 27-year period in Texas and California. During analysis, some interesting patterns began to appear.

 

Factors contributing to audit risk:

  • High ratio of exempt sales when compared to total sales
  • Audit history
  • Incorrectly documenting tax exempt sales.
  • Failure to charge tax on out-of-state sales.
  • A difference in the recorded versus reported taxes that’s collected and remitted.

 

Also, the study found that if you operate in any of these industries, your audit risk is higher than average:

  • Manufacturing
  • Retail
  • Wholesale/distribution
  • Food service
  • Construction

 

Furthermore, states are becoming more serious about auditing sales tax practices. They seem to be especially focused on collecting lost revenues from e-commerce sales.

 

Now, you’re probably wondering, how much would it cost, if I was audited and the auditor found problems? According to Wakefield research, SMBs can expect to spend about $114,000 in penalties, taxes and fees. Larger businesses can easily be out more than four times that amount.

 

Learn more about audit triggers, what you can do to avoid them and how to protect yourself.

Other Posts You May Enjoy

Acumatica Pro Tip: Timecard Posting Options in Acumatica Project Accounting

One of the most common issues project focused organizations face is accurately tracking the labor and other resources they use on each project. Acumatica understands this and has developed its cloud ERP with a project accounting module that gives organizations like yours the flexibility to choose how you would like to assign expenses and resources to projects.

Do You Do A Lot of Work in Excel? Paste Special Should Be Your Best Friend

Accounting and finance pros, who work in Excel, would you like to get more done in less time? Meet Excel’s little known Swiss Army knife, the paste special feature can speed calculations, formatting and other tedious tasks. Once you discover all you can do with this tool, you’ll wonder how you got along without it for so long.

Acumatica Pro Tip: Tame Document Overload with Acumatica File Management Tools

One of the most frustrating parts about collaborating on file is often keeping track of which version is most up to date. No one likes putting hard work into a file, only to find out their team members are already three steps ahead of them. See how Acumatica’s file management features put an end to these issues.

Acumatica Pro Tip: How to Create an Acumatica Favorites List

Tired of searching through endless menu options to find the windows you use most often? Set up your Acumatica favorites list to save yourself time and energy! Just like your favorite Internet browser, Acumatica offers a tool to help you store and easily access the windows that are most important to you. Learn how to set it up.

Third Party Spotlight Greenshades for Microsoft Dynamics: Which Solution Is My Solution?

Managing a staff of employees takes a lot of paperwork. If you’re struggling to handle it all and already use Microsoft Dynamics GP or SL, you’ll want to take a look at Greenshades. It’s a handy Dynamics add-on that can save you tons of time and effort. Get the inside scoop!