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Best practices for managing multistate sales & use tax audits
Whether a company is operating with a robust tax department dedicated to sales tax or has a small team of tax professionals handling all tax issues, the impact of a sales and use tax audit can be overwhelming. Taxand USA highlights the key aspects to focus on to streamline the tax audit process.
For many companies sales and use tax audits happen every 3 to 4 years like clockwork. Depending on the number of legal entities a company has and the jurisdictions in which it operates the number of ongoing sales and use tax audits at any particular time can reach an unmanageable number. In order to streamline the audit process and better manage your audit workload the following should be considered.
Organisation is of utmost importance
When you are inundated with audit notifications, it is best to designate at least one and possibly multiple team members if possible to audit management. It can also be advantageous to assign all audits within one state or within a certain business operation to one team member.
Tax type, audit period, auditor’s name, statute waiver expiration date, taxing jurisdiction, preliminary assessment amounts, comments associated with the audit, and what stage the audit is in is all important information to keep track of. It may be beneficial to prioritise each audit to establish which audits should be addressed first, depending on e.g. expiring waivers, anticipated assessments, the retirement of an auditor etc.
Maintain control over the audit process
Control the flow of information the auditor receives. The primary goal should be to make the auditor’s review of the company documentation as easy as possible whilst ensuring that the company is not providing information that is outside the scope of the audit. Having an audit checklist and consistently updating it when information is transferred allows the team to confirm that key project milestones were completed, while also maintaining an audit trail.
Maintain positive relationships with the auditors
The last and possibly most important area is responsiveness. One of the key attributes of a successful audit is establishing a good working relationship with the auditor. The simplest way to ensure that you get off to a good start is to respond to auditor requests in a timely way.
Plan for when the audit is complete
Be prepared to take action if the audit results are overstated or unreasonable. It is also best to have an idea going into the audit of what additional taxes might be due (or potential refunds). If the audited amount is not what you were expecting be prepared to discuss potential recourse with the auditor.
Also published in Thomson Reuters' Taxnet Pro, 28 May 2014
Managing multiple audits can be a daunting task for tax departments as some audits can be time-consuming and may require an extensive amount of attention to ensure they are completed in a timely way. When team members are organised and take the initiative to implement internal processes to help track audit progress, it helps alleviate some of the intimidation caused during the audit process.