Free whitepaper that will help you prepare for any sales tax audit that may come your way.
Gone are the days when an auditor would come take up temporary residence in your office space while they complete your company’s audit.
Remote audits are the new reality. You will likely never meet your auditor face to face!
More companies selling in more states, the Wayfair decision allowing states to require sales tax collection from many of those companies, and a global pandemic have all contributed to the rise of remote audits for taxpayers.
It’s no longer just auditors in your home state contacting you, it could be from any state where you make substantial sales. The Wayfair decision has amplified the focus on sales tax and economic nexus in audits—meaning a fly-under-the-radar strategy for your sales tax requirements isn’t going to cut it.
With a new audit reality comes new challenges in effectively communicating with the auditor, helping the auditor understand your business, and securely transferring your data to the auditor. Learn proactive steps you can take to make remote audits run smoothly.
Like any relationship in business, you want to start off on the right foot with the auditor with a positive first impression. Accomplishing this in the remote setting can be more difficult due to the lack of in-person appearances.
How you communicate should be at the forefront of your mind as it sets the tone for future exchanges. With the ongoing pandemic, auditors may be working from home, resulting in the need for scheduled calls and agreement on the communication method. In our recent experience, auditors are not typically using video camera for calls which makes it difficult to understand the full scope of their responses, particularly when negotiating. Body language really is important!
The frequency and format of communication can either build momentum or result in halted work or delays and add to your interest costs as the taxpayer. Check state departments of revenue websites to see if a state has outlined any protocols specific to remote audits. Assign someone on your team as the audit coordinator to handle setting up regular check ins, the methods of communication, and any questions that come in from the auditor. Part of this will be ensuring milestones for deliverables are outlined and that the regularly scheduled meetings include all the information and data needed to keep the audit on track and present in the auditor’s memory.
Take a proactive role in communicating with timely and complete responses to stay on good terms with the auditor and keep the audit on track.
When it comes to a sales tax audit, you want to set the narrative about your business, how it operates, and how your data fits into your business workflows. Don’t leave an auditor to dig around your company website to see what they can learn. Any of your processes that lack clarity from the auditor perspective can lead them to make assumptions. What the auditor knows about your business can also impact what information the auditor requests from you.
How should you best share about your business with the auditor? For general company information, other departments are your allies in setting the narrative. Contact your marketing and HR departments to see what overview materials they might have for the company that would help the auditor understand your business and/or industry.
For information about your data and systems, consider providing an overview of your systems, dates they went live, and when significant changes occurred as part of your opening conference with the auditor or one of your earliest meetings. The auditor may not be familiar with your selling systems so it’s best you help lay the track for them.
Depending on your industry, the auditor may want to see how a particular process plays out—especially if you are claiming an exempt use and need to justify it. If you are a manufacturer, see if you can provide videos of processes in lieu of a traditional in-person plant tour.
Some states like Texas provide helpful audit manuals for different industries that outline the types of information an auditor will be investigating for the audit.
The security of your company data should be a top concern. Communication and data transfer with a government entity is no exception.
States may use virtual audit rooms or may just communicate through email to facilitate your audit. Unfortunately, state secured email systems can be time-consuming and frustrating to access and maintain support and documentation. Many government systems retain emails for a short period of time or only allow access from a notification to a specific email. That said, be sure to print or save copies of all emails both sent and received through state secured email systems to thoroughly document your audit.
If the state you’re working with is not using a virtual audit room or secured email system, you’ll want to take precautions with your data. For example, you could set up your own virtual audit room and give the state access. If this is a new system for your company, make sure you understand all its features and what it is capable of before explaining it to the auditor. You want the auditor to be comfortable with your processes and how to access your records. Basic cloud storage systems like Google Drive, OneDrive, or Sharepoint have the ability to restrict access and editing of documents with third parties.
Since sales tax audits are in greater focus post-Wayfair, you can expect to receive an audit notification sooner rather than later, especially if you have a growing sales footprint across the states. States are on the lookout for discrepancies between when you might have established nexus and when you started filing sales tax returns.
A sales tax department that has audit procedures in place ahead of time will greatly reduce stress should an audit notice arrive. Establishing your ideal communication norms for a remote audit, what key pieces of information to have on hand about your industry and your company operations and systems, and how you will securely transfer company data are critical pieces of the plan.