California Sales Tax Audit Representation
The California Department of Tax and Fee Administration (CDTFA), formerly the California Board of Equalization (BOE) has been increasing its sales and use tax audits of small and medium-sized California companies: over 60,000 sales and use tax audits in recent years, many of them sales tax fraud audits.
Whether your business is entirely located in California or has its headquarters outside of California but does business in the state, you have to pay California Sales Tax to CDTFA, BOE.
You need to pay California sales taxes if:
- You sell inside California
- You store merchandise in California warehouses
- Your commissioned sales representatives make sales in California
- Your employees or contractors do installs in California
- You lease equipment in California
- You’re a California subcontractor and you install materials for a prime contractor
That’s not an exhaustive list.
Get reliable CDTFA, BOE, representation today 818-649-8552.Who is Likely to Get Notice of a Pending California Sales Tax Audit?
The businesses most likely to be targeted for a sales or use tax audit are businesses likely to have filed inaccurate returns, and so owe the California Department of Tax and Fee Administration, formerly Board of Equalization more money. The tax jurisdiction is a self-funding body, and it needs to pay its auditors out of fines and penalties. A “productive” audit is one in which the amount of new taxes it raised exceeds how much it cost for auditing.
For the same reason (money) you’re more likely to be audited if your company is large and profitable than if it’s small business.
You’re more likely to get audited if you’ve already been audited. Seems like there ought to be a lifetime limit, but no. They can audit you every year.
Location, location, location. Turns out your business address can affect whether or not you’re likely to face a sales or use tax audit.
Likewise, the industry you’re in can determine whether you’re audited. Cash-based businesses are popular with sales tax auditors: liquor stores, bars, restaurants. But sales tax audits of cash-based businesses are complex and difficult for auditors, so sometimes they don’t think your company is worth their effort to audit.
Sometimes, a sales tax auditor will be examining one of your vendors or customers, and will decide to reach out and audit your business, too. They call that a whipsaw audit. Also, if you file for bankruptcy, selling the business in escrow, or dissolving your business, you may trigger a sales tax audit. Companies who have a habit of filing their sales tax returns late will be audited sooner or later. Companies that buy a lot of supplies online, will be subject to use tax audits by CDTFA, BOE.Undercover Observation
You’ve heard the phrase, “Big Brother is watching you.” Well, it’s true. If you are under investigation by the California Department of Tax and Fee Administration, formerly Board of Equalization, you may be visited at your place of business by an undercover investigator who will observe your business’s ordinary transactions. If you own a bar, the CDTFA, BOE, calls their undercover observation a “Pour Test.” The spy watches what percentage of alcohol goes into each drink. (Your tax dollars at work.)
A sales tax audit by the California Department of Tax and Fee Administration, formerly Board of Equalization is meticulous. Your auditor will minutely examine all your records to see whether you reported all your sales and paid sales tax on them. They want to see bank statements, cash receipts, invoices, federal returns and ledgers.
The sales tax auditor is not your favorite uncle or your childhood friend. The auditor is at your place of business to prove that you should pay the state more money. That’s the goal. But you can thwart the CDTFA, BOE if you choose the right sales tax audit representation. Mike Habib is your friend.
Get reliable CDTFA, BOE, representation today 818-649-8552.Pre-Audit
Your sales or use tax audit is concerned with two things: taxable sales and taxable purchases that weren’t properly taxed. If you are unsure about what your audit notice wants you to gather up, call the auditor and ask. Prepare everything in advance. Make sure you have all the paperwork they requested. And never never give the auditor paperwork or information they didn’t specifically ask for. Performing a “practice audit” to make sure you’ve got everything is a wise idea.
If your sales tax auditor scheduled your audit in the middle of the NBA playoffs, or tax season, you can negation moving the date.Do I Have to Pay Tax on Tips?
Like a relationship, it’s complicated. If the tip is a true tip, calculated in the heart of the customer, it’s non-taxable. But if you have a sign that says “20% gratuity charged on parties of ten or more,” or if a tip is automatically added to the bill, then it’s taxable.No Records?
What if you didn’t keep good records? You can reconstruct acceptable records, but it’s complicated again. Best to have Mike Habib help you with that.After Your Sales Tax Audit
After your trial by fire, I mean your sales or use tax audit, you may not agree with the auditor’s findings. You have the option to appeal. You can ask for an appeals hearing, or a hearing before the BOE. It’s crucial that your sales tax assessment is accurate, because the BOE shares info with the IRS and the FTB. Those agencies may choose to audit you, too.
What if you can’t pay what you owe? Big trouble. Your seller’s permit could be revoked. And a police officer could gather up the contents of your cash register drawer and take it to the CDTFA, Board of Equalization. If a corporation can’t pay the additional sales taxes and penalties, the individual officers of the board could be left with the bill.
There are settlement options with the collection division, after the audit is finalized.Reverse Sales Tax Audits
Not all sales tax audits are bad. A reverse sales tax audit can help find where you overpaid your sales taxes, and may net you a refund. Unfortunately, a refund will probably trigger another sales tax audit next year.
A sales tax audit is conducted to collect money and thereby increase state revenues. But they have other reasons, too. Sales tax auditors have their fingers on the pulse of the marketplace, because they witness the actual sales taking place in the state, and they report this information to the state legislature.
Get reliable CDTFA, BOE, representation today 818-649-8552.