Once in a while, the prospect of a sales tax audit will confront a company and they will need a New York Tax Lawyer. This is an examination by the New York State Tax Department of all the financial documents of a company. This is done to verify if the proper sales tax amount is collected and remitted to the state.
The sales tax audit is seen as a method of the state to promote compliance when it comes to tax laws.
Sales taxes refer to tax liabilities of businesses when they charge customers for their sales. This is different from the use tax which is another form of state tax which businesses pay voluntarily when they purchase goods and items out of state. If you are confused, your tax law firm can help clear this up for you.
A business should not worry when the IRS calls for a sales tax audit. It is perfectly normal and other businesses also undergo this procedure. But for a more stress-free situation, it is best if a company is prepared to answer inquiries about sales tax audit assistance. A state tax audit always comes with a prior notice so you have time to involve a tax lawyer or CPA. Upon receipt of the notice, your company should receive the state auditor with utmost preparation. There are two types of audit: one of which is through self-auditing with the help of a certified auditor. Some states will assign an auditor for a specific and unchangeable time. Whatever the mode of the audit, make sure that the company is ready to accommodate the auditor.
The auditor will request all necessary paperwork and financial documents of the company relevant to taxes. Your company should supply this readily and swiftly because it will hurt your organization if the auditor creates incorrect assumptions due to insufficient information. Sales tax audits can revert to as far as three to four years in the financial history of the company. For this purpose, your company needs to provide proof of tax payments along with records of tax-exempt customers whom you did not charge sales taxes to. Foresight is essential. All necessary financial documents must be at hand should they be needed.
With the lead time provided by the state taxation department, your in-house accountants can do some preliminary examination of your records to look for omissions and incongruent data. This will let you know beforehand about possible documents which may be requested by New York State Tax Department.
The presence of your own team of accountants and tax lawyers in the sales tax audit is also helpful because the in-house auditor can be a quick reference point for the auditor.
While many companies are intimidated by the prospect of a sales tax audit, a huge mistake is to ignore this notice. The state taxation representatives will come in and request your important financial documents. When your company fails to provide these documents, it sends a bad impression right away.
You need to keep adequate records of your financial activity especially your handling of tax liabilities. Your accountants should address specific aspects of your business so that you are prepared:
- Use of a point of sale system
- Compatibility of system with accounting software
- Type of cash registers used
- Coordination of sales and sales tax reports
- Records based on deposits
Lastly, sales tax audits may be a primary factor in determining how your company manages its tax liabilities. But they are not the final word. Even if a negative report emerges from the sales tax audit particularly in mistakes or omissions, your company can still appeal the results and negotiate for a tax settlement or a new audit altogether.
On the other hand, if your business has a lapse or liability when it comes to due taxes, this should be settled immediately if possible. The resulting audit liability should be considered as a necessary cost for business longevity. This can also serve as a primer for tax planning and record keeping in the future. Keep your tax law firm close by during the process and afterwards if you think you’ll need advice.