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Lucinda Rowlands has been the general manager at Zip2Tax since 2010. She has extensively researched sales and use tax regulations in order to help small businesses navigate complicated tax rules.
survive an audit
survive an audit
States have been under enormous pressure to balance budgets without raising taxes. With so many Americans still unemployed or under-employed, states are bringing in reduced sales and income tax revenues while being asked to provide expanded social services. As a result, states have been increasing the number of audits they perform and they’re using high-tech methods to examine every penny. Keep in mind that this audit-your-way-to-fiscal-balance-method works very well, but it has made it necessary to hire many new and inexperience auditors. Some of these hires have very little training and are often learning while on the job. While audits can be somewhat less enjoyable than passing a kidney stone, there are some simple steps you can take to help get you through the pain and survive an audit.
- Schedule the audit to begin on a date when you will have adequate manpower available to assist the auditor by providing documentation and answering questions.
- Make sure you have a sales tax/accounting manual and that your procedures show regular updates have been occurring.
- Review your documentation to make sure it is up to date and orderly, including:
- Sales figures
- Accounts payable
- Exemption certificates
- Purchases, including out-of-state
- Ledgers, journals, and adjustments
- Filed returns
- Credits and claims for refunds
- Treat the auditor as a professional with appropriate courtesy. Provide them with adequate working conditions.
- Be consistent with your answers. Do NOT lie.
- Convince the auditor that you are confident in your compliance. Keep in mind that you know a lot more about how your business operates than the auditor does.
- Watch for overpayments.
- Be prepared to get professional help.
- Be prepared to negotiate.
Remember, audits are like the holidays -they seem to sneak up on you out of the blue, they create chaos, and you have to spend a lot of time with people you don’t really care for. You’ll get through it, I promise. Just smile, play nice, and stock up on Alka-Seltzer. And when it’s over, if you feel the need for a little passive-aggressive payback, you can always thank your auditor with a nice fruit cake left over from last Christmas.
Charles F. Spielmann is a consultant to Zip2Tax where he shares his years of experience in sales and use tax.
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