Sales Tax Problems | Tax Consulting and Services

Sales Tax Problems

Our Certified Tax Resolution Specialist, CPAs and Lawyers often represent clients with Sales Tax Problems. In many states sales taxes are collected by the Department of Revenue. Sales tax is imposed on retailers for the privilege of selling tangible personal property at retail. Sales tax is measured by gross receipts from retail sales. Many of the states also administer the use tax. Each state employs a varying number of revenue agents. They conduct sales tax audits, and collect unpaid Sales and Use taxes. Our team Tax Resolution Specialist, CPAs and Lawyers can handle anything from the receipt of the initial sales tax audit notice, through the appeal, protest and even administrative court.

Each state conducts sales tax audits using a variety of different techniques depending on the type of business under audit. For example when performing a sales tax audit of a bar the auditor may conduct an undercover "pour test" to determine the amount of alcohol that is poured in each drink. Purchase records are than examined, and that information can be used in conjunction with sale prices to determine the amount of sales. No matter what type of business is under audit preliminary examination by the sales tax auditor will generally include comparing the total sales recorded on the taxpayer’s books to the total sales reported on the taxpayer’s sales tax returns; comparing the total sales recorded on the taxpayer’s books to the total sales on the taxpayer’s income tax returns; comparing the sales tax reimbursement the taxpayer collected to the sales tax reported on the returns and comparing the claimed sales for resale to resale certificates.

Our Sales Tax Services

Records generally requested by the Sales Tax Auditor include:

Books of account including the taxpayer’s income statements, balance sheets, general ledgers, and other summary records of the business operations, including state and federal income tax returns.
Original documents that support the entries to the taxpayer’s books, such as sales and purchase invoices, purchase orders, contracts, bank statements, and any other documents that result from the business operations.
Resale certificates, exemption certificates, bills of lading, or other documents supporting claimed exempt sales.
Copies of the sales tax returns filed with the State and the working papers and schedules used to prepare the sales tax returns.
Many sales tax problems are due to a lack of adequate records. Our Tax Resolution Specialist can help to determine if your records are adequate, and advise you and your CPA on the reconstruction of records.

A Negative Determination May Spark Other Audits (Federal & State Dept of Revenue)

A sales tax audit determination by the State indicating that gross receipts were understated for sales tax purposes, may also lead to a conclusion that gross receipts on a taxpayer's state and federal income tax returns were also understated. Since the State may share information with both the IRS and the Department of Revenue it is important to dispute all erroneous sales tax audit adjustments even if at first it doesn't appear cost effective. For example if the State determines that $300,000 of gross receipts have gone unreported that would result in sales taxes due of approximately $19,000 depending on the county in which you are located. However, a failure to report $300,000 in gross receipts for federal and state income tax purposes could mean additional income taxes due of $90,000 or more plus interest and penalties.

If you don't agree with the results of a State sales tax audit there are many opportunities for our Tax Resolution Specialist to resolve your sales tax problems. For example typically when the sales tax audit is complete, the auditor will arrange to hold an exit conference. The sales tax auditor’s supervisor may also attend. At this conference, the sales tax auditor will explain any proposed additional sales taxes. As your Tax Resolution Specialists we will meet the sales tax audit supervisor, and work to reduce any proposed sales tax bill. If that conference doesn't result in a satisfactory result, as your Tax Resolution Specialists we may meet with the District Manager to try and minimize your sales tax problem.

If agreement in a sales tax audit cannot be reached at this point then the State will issue a Notice of Determination. As your Tax Resolution Specialist, we can file a petition on your behalf, but we only have 30 days to file. Once the petition is filed with the State there is an opportunity to settle the case with the State settlement division. Many sales tax problems are resolved with the State settlement division. An informal hearing with an State hearing officer may also result in a resolution of a State sales tax audit.

If a petition is not filed with the State then the Notice of Determination will become final, and you will be required to pay the full amount of the claimed liability, before you can file a claim for refund, and have typically have an opportunity to have your case heard by the Board. There are limited exceptions to this rule, and even if you have failed to file a timely petition with the State all is not lost, and you should consult with our sales Certified Tax Resolution Specialist to discuss how your sales tax problem can be resolved.

If an appeal to the Board is unsucessful then in order to further dispute the sales tax audit typically the sales tax must be paid in full, and a timely refund claim must be filed. Typically, after the refund claim is denied, or the State fails to act typically within 6 months, our sales Tax Resolution Specialists can file a suit in State Superior Court to obtain a refund.

If a corporate taxpayer cannot pay the sales taxes it owes, the State may issue a so-called "Trust Fund Assessment" in which it assesses the unpaid sales tax against the persons Responsible, or supervising the filing or paying of the corporate sales taxes. This can include officers, and shareholders of the corporate taxpayer. There is no requirement that an individual be a shareholder for a “Trust Fund Assessment” to be made. Thus non-owners including controllers or CFOs can be held personally liable for corporate sales taxes. This is one more reason why it is important to dispute a sales tax audit if the State has made errors in its determination. However, even if the corporation is liable, if the State wants to go after the individual shareholders or officers it must first typically issue a separate Notice of Determination, and the shareholders or officers will have similar appeal rights to those afforded the corporation in the sales tax audit.

A State sales tax audit, and its appeal is a very complicated process requiring a knowledge of the State sales tax laws, as well as an understanding of the procedures of the State. If your case must go to court then an understanding of state court rules and procedures, along with the rules of evidence are required. Our sales Tax Attorney can represent you from beginning to end with your sales tax problems.

Don't Let the State roll right over you, Get Expert Tax Relief Help Today!

Let our Certified Tax Resolution Specialists assist you in resolving this issue. We have found most clients that try to resolve this on the own, make matters work or worse yet, incriminate themselves.

For additional on sales and other unpaid taxes, see Unpaid Taxes FAQs