Accuracy of Sales Tax Calculations
Auditors will examine whether sales tax rates were applied correctly based on the jurisdiction where the sale took place. Errors in applying local, county, or state tax rates can lead to underpayments or overpayments, which may trigger penalties.
Proper Collection and Remittance
They will verify that the correct amount of sales tax was collected from customers and subsequently remitted to the appropriate tax authority. Any discrepancies or missed payments can result in penalties and interest charges.
Exemption Certificates
If your business sells goods or services that are exempt from sales tax, auditors will want to see valid exemption certificates. These certificates must be properly filled out and up to date. Missing or invalid certificates can lead to retroactive tax assessments.
Classification of Taxable vs. Non-Taxable Sales
Auditors will review how you classified sales as taxable or non-taxable. Misclassifications are common, especially in industries with complex rules, and can result in additional tax liabilities if not handled correctly.
Record-Keeping Practices
Maintaining comprehensive and organized records is crucial. Auditors will assess whether your records are sufficient to substantiate sales, exemptions, and remittances. Poor documentation can lead to unfavorable audit outcomes.
