What is a sales tax audit?

In general, sales tax returns are subject to audits in three-year intervals, at the time a permit is closed out, or in connection with an audit of another permit held by the taxpayer.

Audits can also be initiated as a result of information received from the outside sources.

In a sales and use tax audit, the auditor wants to determine the following about the returns you have filed:

  • Did you report all gross receipts from sales of tangible property and taxable labor and services?
  • Did you report the cost of all business equipment and supplies that -purchased without tax either from out-of-state vendors or for resale that would be subject to use tax?
  • Did you properly claim deductions?
  • Did you properly allocate local tax?
  • Did you use the correct rate of tax when reporting sales in special tax districts?
  • Did you properly apply tax to your sales and uses of tangible property?

    • Initial contact is usually by phone call from the auditor.If unable to reach you by phone, the auditor may write or visit your business location.

    During the examination, if the auditor finds that your records indicate possible reporting errors, the auditor can utilize their many different audit methods such as mark-up method, sample basis audit, observation test at your business premises, and etc.

    When the audit is complete, the auditor will arrange to hold an exit conference to discuss the audit findings.If you disagree with the audit findings, you will then given your appeal rights.

    Under the California Revenue and Taxation Code, any person who evades the reporting, assessment or payment of sales taxes that would otherwise be due may be guilty of sales tax evasion.Violations can be subject to fines and/or jail time.

    What are examples of sales tax evasion?

    If your sales tax audit cannot be resolved with the auditor, it is important to engage a representative in a timely manner.

    If you have a sales tax problem, we will represent you from the start to the end of the sales tax controversy.

  • Retailers collect sales tax reimbursement from their customers on sales but intentionally fail to report and pay the tax collected.
  • Retailers intentionally fail to report all retail sales on which sales tax is due.

    • As a former CDTFA Auditor, we have significant experience representing taxpayers before the State CDTFA with respect to sales tax audit and sales tax collection matters. We also can assist you in resolving an outstanding tax liability.

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