What Makes Sales Tax Audits so Frustrating?

Have you recently been notified of a sales tax audit?  Are you under audit now?  I have never seen so much sales tax audit activity in my 23 years of tax consulting.  Auditors are coming out of the woodwork and are contacting companies who have been off the radar for years.  Further, the audit findings being proposed by these auditors are outlandish.  I'm not sure what type of instructions these folks are getting, but there must be some moratorium on using logic and reason when conducting sales tax audits.  I've been dealing with several audits where the auditor is altering the facts and the law to suit his own position.  He is imposing his own "judgment" in place of the contract, written responses from clients, and a substantial body of other documentation that shows him to be flat out wrong.  His response, "if you don't like it, you can fight it".  I'm afraid that is the new auditor mantra!

So why are audits so frustrating and how can you minimize this frustration?  Here are some thoughts based on the audits I have worked on over the years.  As you can see, the problem with audits may not always be with the auditor.  You may actually be the problem.  If so, step out of the way or get some training specific to dealing with auditors.

Common issues leading to problematic audits:

1.      Bad auditor:  Auditor doesn’t know what they are doing, isn’t taking time to understand the business, doesn’t listen to what client says, has own agenda, overloaded and no time to do a good job.
2.      Company not ready:  person in charge of audits is too busy to attend to the auditor unless it is at a critical point, Company not ready when auditor arrives and is forced to quickly gather info for audit, company waits until audit is complete before questioning the methodology, company constantly asks for delays and is still not ready when auditor arrives, inexperienced person assigned to handle audits, company takes adversarial position with auditor.
3.      Data:  company records are not clear, data is not accurate or is hard to understand, tax systems not capable of developing clear audit trail, multiple data feeds make it difficult for auditor to work.
4.      Business Model: Company does a variety of things, sells a variety of products and does not do a good job at developing the tax rules, invoices, and support documents to present a clear picture to the auditor.
 
In any audit situation, it is normally a combination of these items.  They tend to compound one another.  A hurried auditor combined with bad data and incompetent company personnel will lead to a really bad conclusion.  A good auditor who is treated like dirt will not be overly cooperative when issues arise.

If you have not been audited brace yourself.  They are coming to get you.  Be ready and be on your defense.  Know your issues before the auditor arrives

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