What documents you should have ready for the auditor – The auditor will send you a confirmation letter that contains a list of documents for you to provide. You may or may not have everything they have requested. The documents that you will need to provide will be based on your business. At a very minimum, you’ll need to provide the following:
- Bank Statements
- Federal Income Tax returns
- Sales Journals
- Sales and Use Tax Returns
- Purchase Journals
- Sales Invoices
- Purchase Invoices
- Resale and Exemption Certificates
What are the requirements of a good faith certificate? – Did you know there are requirements for a good faith certificate (exemption and resale)? In other words, did you take the certificate in “good faith”? Any certificates that you have on file when the audit starts cannot be “independently verified” by the auditor. That means that if that person gave you an improper certificate, as long as it meets all the rules of “good faith”, the auditor has to accept it. The good faith requirements are:
- Certificate must be complete, you cannot have a blank. Make sure all fields are filled out. Even missing a phone number can invalidate the certificate and the auditor can make you get a new one and then verify that it’s appropriate for that person or company to give you the certificate.
- If it’s a resale certificate, make sure that you take note of the taxpayer number. It must be eleven digits long and start with a “1” or a “3”.
- The certificate should have been taken at the time of the sale or near then. You can have a blanket certificate for all sales to a customer but again, it should have been taken at or near the beginning of the relationship.
- AND THIS IS THE BIG ONE – Make sure you take note of the purchasers business and it makes sense that they would resell what they are buying from you. If it doesn’t make sense, the auditor will deny the certificate. Example; a motorcycle shop owner gives a resale certificate for a $25,000 diamond ring purchased from a jeweler. The jeweler shouldn’t accept that certificate because it doesn’t make sense that the motorcycle shop would resell a $25,000 diamond ring.
How long will my audit last? – That depends on many factors. Please don’t make the assumption that because the auditor scheduled two days to start the audit that that’s all it’s going to take. The length of the audit depends on the size of your business, how organized your records are, how much time you have to devote to the audit, how many other audits the auditor is working on, etc. Again, this is where an experienced and professional tax consultant can assist you. They will work with you to make sure that all the documents the auditor will need are available at the beginning of the audit and work with you to get any additional documents the auditor may determine they need. They can also work with the auditor to stay at the top of the auditor’s priority list and get the audit over with as quickly as possible.
What if you disagree with the audit results? –
You have the right to appeal your audit by filing a Petition for Redetermination Hearing and Statement of Grounds. This filing is due within 30 days of the billing date of your audit and will be stated on the front page of your audit bill. There are specific rules to filing for a redetermination hearing and consulting with an experienced, professional tax consultant should be considered if you wish to appeal your audit. It has been our experience that 80% of all Texas Sales and Use Tax audits are incorrect. It doesn’t hurt to have someone take a look at your audit to make sure it’s right before you pay it. Chances are, it’s not!