NYS Sales Audits

There is no denying that a sales tax audit is not a pleasant experience.  As a tax attorney and CPA that helps clients navigate through the audit process with minimal pain (emotional and financial), I have gained a unique perspective on the motivations of the state to enhance their collections of tax. As awful as this sounds, it should be a reminder that the best defense to an audit is to have adequate records. Often, a client does not have adequate records, since they were either unaware of the need for good records, or it was to much of a financial burden to maintain the records needed to avoid an audit adjustment. When a client does not have adequate records, the tax laws allow the state to start estimating the taxable sales, and they never estimate on the low side.

Since having good records is so critical to a successful audit, I spend a lot of time with my clients to organize and improve their sales tax records before the audit starts. We (my client and I) then sit with the auditors when they perform the audit to be available to answer questions. Most clients are initially uncomfortable being at the audit, but over time they understand the value of being there and helping influence the auditors, by showing our human side and showing that we will not be pushed around, in a friendly but productive fashion. If the auditor is being unreasonable, then we ask to speak to the persons supervisor and division head if we determine that would be productive.

If all else fails, and the client has poor records and the state creates a law bill the appeal of that sales tax bill is the next step. In the conciliation conference, a mediation occurs between the taxpayer and state to negotiate a settlement. Often the results of this process are very good, and a fair result can be obtained. If that does not happen, the next step would be to go to the Division of Tax Appeals. However, from my experience settling at the mediator produces the best outcome for most cases.

 

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