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California Business Sales and Use Tax Audit

California Tax Audit Lawyers

Businesses in and around the Sacramento area including companies located in and around Roseville and Folsom, California, are fortunate to be located in a dynamic economic environment. Businesses ranging from small “mom and pop” operations to major national and international corporations make up the business community that defines California. The businesses in this area generally benefit from a strong underlying infrastructure and a commitment to providing business owners with valuable government resources.

However, the benefits enjoyed by businesses in and around Sacramento only exist due to the various business taxes paid not only to the federal government but also to the state government of California. Taxes paid by companies and corporations in California include the state’s sales and use tax.

Why Was Your Business Selected for a Sales or Use Tax Audit?

There are an array of factors that can contribute to an IRS agent’s decision to launch sales and use tax investigation. Generally, the reasons behind your audit have to do with certain specific red flags you, an employee, or a manager may have raised during interactions. For instance, if a responsible party changes his or her story or makes inconsistent statements regarding sales tax policies and practices, this alone can be enough to trigger an audit or investigation. However, a number of other factors and characteristics of your business can also motivate an audit. These factors can include:

  • Your business is cash intensive or has significant cash dealings.

  • Your company makes an excessive number of claims for tax-exempt

  • An audit of a vendor or customer revealed certain inconsistencies in your company’s taxes.

  • Your company is engaged in an industry where non-compliance is prevalent.

  • Your bookkeeper keeps multiple sets of books.

  • Your company consistently fails to report and pay sales or use tax.

  • Your company has a history of tax mistakes or other tax noncompliance.

Every tax situation is different and, therefore, assessing why an audit was launched is a first step towards preparing for the audit. Once you understand why the audit was launched, you can begin to understand what topics the audit is likely to cover and the types of evidence and records you will need to present.

The Danger of Insufficient Records in a Sales Tax Audit

If your company comes under audit but has failed to keep accurate books and records it is placed in an extremely precarious situation. The auditor may conclude that your records are not reliable or sufficient and may decide to launch a sample audit. In a sample audit, the auditor will observe your business activities over a certain defined period of time. During this time he or she will track sales and other pertinent events. From this “sample,” the auditor will determine your company’s sales tax obligation.

Since the sample audit is based on a representative sample, it is entirely possible for the sample to overstate and inflate sales beyond those that actually occurred. This means that the business can end up owing taxes on sales and income it never received. Paying taxes on income that was never received is clearly an incredibly difficult financial situation for a business to find itself in. Determinations of this type are often a worst-case scenario and can result in the closing of a business. Therefore, exhaustive preparation with a tax professional is recommended prior to a sales or use tax audit.

Can Your California Tax Problem Cause Federal Tax Issues with the IRS?

Unfortunately, California tax problems can affect one’s federal taxes as well. California’s tax agencies including the California Board of Equalization are known to report tax failures to the IRS. While the IRS retains discretion into whether it will pursue an audit or charges, it is likely to do so if the enforcement action is likely to return tax revenues to the United States government.

Work with Business Tax Lawyers to Satisfy Sacramento, California Sales Tax Obligations

If you have concerns about your business’s handling of sales tax or use tax obligations in California, the lawyers of the NewPoint Law Group, LLP, may be able to assist. We can assess your past handling of these tax obligations for oversights and other problems that can lead to large fines and penalties. If your company has already received an audit notice, we can assist with preparation and work to minimize the consequences of the audit. To schedule a confidential tax consultation at our Folsom or Roseville law offices, call 800-358-0305 or contact us online.

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