Avoiding Tax Audits Using Research-based Recommendations

August 1, 2018

The threat of a tax audit might lurk in the mind of any sensible business owner. With states looking to address budget needs with more aggressive auditing, this possibility is becoming more and more likely. But help for avoiding this hazard is available in a free white paper.

The research was conducted by Avalara and Peisner Johnson & Company. They requested information from both Texas and California state governments. The Texas Department of Revenue provided data on sales and use tax audits from 1989—2016 (approximately 64,000 audits). The California State Board of Equalization Annual Report (2013—2014) provided details on the state’s sales and use tax audit revenue and supporting demographics.

An analysis of this data showed several important patterns:

  • State auditors tend to focus attention on industries where past audits have shown tax discrepancies.
  • The most commonly audited industries are retail, manufacturing, construction, wholesale/distribution, and food services.
  • A third of the audits conducted focused on companies with headquarters outside of the state where the audit took place.
  • One of the most common noncompliance issues that triggers an audit hinges on untaxed purchases from out-of-state vendors.
  • Audit assessments from use tax not being paid came to an average total cost of more than $100,000.

Clearly, taking a little time to prevent an audit can be very valuable. And a good first step may be to get more information from the free white paper.

One of the most useful insights that Avalara offers on this issue is that the state government and the actual auditors are not the enemy. The real threat is risk. By targeting the business processes and procedures that could bring your business to an audit, you can prevent that audit. The regulations for sales tax are complex and variable though, so it may be worthwhile to gather support from experts.

 

To further secure your organization, you can integrate sales tax automation with your business operations software. aACE 5 offers the surety of a strong connection to AvaTax. The precision of GPS coordinates and the vigilance of continuously updated tax regulations can put your mind at ease. Learn more today.

"As a company, we had been through 3 previous versions of FileMaker software and we were looking for a system that was able to grow and change with us instead of just scraping an old system and starting fresh every few years. aACE is that system for us. As new challenges and demands arise, Michael and his team are able to adapt and customize our system to meet those needs." ~ Brittany Ulrich, Vice President, ASAP Event Advertising
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