When you hear the word audit, you likely envision the federal tax process and an audit on your federal tax return. While a federal tax audit is always a possibility — and some entities and returns are more likely to trigger one — you or your business may also be at risk for a sales tax or use audit.
These types of audits generally come from a state organization, and each state has a method of selecting at-risk and random accounts for audit. In Texas, one method of selecting tax payers for such an audit is to compare current returns to those from previous years. Tax payers that experienced previous audits where taxes had to be adjusted in an amount of $10,000 or more are at a high risk of a future audit, for example.
Other reasons states may choose to audit include bankruptcy, businesses closing one or more location or sudden changes in sales volume. Audits may also come from completely random selection of accounts by a tax or state agency.
Just as with the IRS, it’s not really possible to protect yourself from the chances of an audit 100 percent. However, you can do things to avoid raising audit flags with an agency. File all tax documents on time and make them as accurate as possible. Avoid filing changes to documents after the fact, and if you have any questions about your tax situation, seek assistance prior to muddling through reports and returns.
Even an angry former employee could cause an audit by reporting some discrepancy or other to a state or federal agency. Since you can’t avoid every possible issue that might trigger an audit, make sure your books and tax documents are always in order to minimize issues should an audit occur.
Source: Forbes, “What Triggers A Sales And Use Tax Audit?,” accessed April. 08, 2015