Misconception #1: Ex-auditors make good tax consultants – To be completely blunt, firms like mine are in businesses for a reason; because most auditors aren’t very good at their jobs. The rules are confusing and in most cases, they don’t take the time to really understand your business, apply the appropriate rules and audit you following appropriate procedures. If they aren’t good as an auditor, how could they possibly be good as a consultant? At ClearPath, we generally don’t hire ex-state auditors for that reason. Please be careful of those firms who tout that the reason you should hire them is because they are ex-state auditors. I’ve defended audits against many of them when they were auditors and I would not recommend them to be the expert professional that you need on your side.
Misconception #2: We do everything right, we don’t need an expert to represent us – Representing yourself in a Sales and Use Tax Audit is like being sued and representing yourself in court. You don’t know what you don’t know. You may have the right argument, you may have all the appropriate documentation to support your position but if the auditor looks right at you and says “NO”, what do you say next? A qualified, experienced tax consultant will know what to say next.
Misconception #3: My CPA has expert knowledge about Sales and Use Tax audits – Sales and Use tax audits are such a specialized area of tax, we find that most CPAs don’t have the bandwidth for that expertise. They are experts in financial reporting and federal income tax issues and most CPAs would agree that their clients benefit from partnering with an expert. Bringing an expert consultant to work with your CPA is one of the best things you can do.
Misconception #4: That wasn’t an issue in my last audit so I must be doing it right – Just because the auditor in your last audit either 1) didn’t assess you on an issue or 2) told you, you were doing it right; if you were doing it wrong and the auditor in the current audit assesses you, you cannot use the previous audit results as your defense. The previous auditor may have missed the issue, the previous auditor may have mis-understood the issue as it relates to your business. There are administrative hearing documents where the judge tells the taxpayer that they “are not entitled to rely on the previous audit results”. That’s why it’s important to fully understand your obligations with regard to compliance so you are not relying on auditors who may or may not be correct in their assessment.
Misconception #5: All State and Local Tax consulting firms are the same –Some tax consulting firms hire only highly intelligent, client focused people who can solve complex problems and then some tax consulting firms hire anyone who previously worked as an auditor for the State of Texas. This audit is too important to your business and to you as an executive or owner of the business. This audit could mean the difference between making a profit this year or showing a loss and being in debt for many years to come.