Businesses in Dallas, Texas, have a number of tax concerns, and for those in retail or service industries, sales tax is one of those concerns. Failure to make sales tax payment or mistakes in calculating sales tax owed can result in audits and tax bills that are increased due to interest or fines. Effective tax administrationis one way to avoid such audits — so is understanding what might trigger an audit.
According to reports, in Texas if a business taxpayer’s account required over $10,000 in adjustments in prior audits, the taxpayer may be more susceptible to additional audits in the years following the action. Because a mistake or purposeful error on tax documents could result in audits for several years, it’s even more important to document and file correctly. Understanding legal and tax obligations, which can change over the years, is essential.
Late filing and inappropriate nexus management are other things that might trigger an audit. Filing late on a regular basis could get your account flagged, and filing sales tax without remitting use tax can cause suspicion on the part of auditors. Nexus, which can be created when entities in one state make numerous online sales in other states, causes audits when the business has not properly registered and filed sales tax in appropriate locations.
Other audit triggers include a sudden change in reported sales, especially when the number drops substantially year over year. A high percentage of exempt sales — those sales that are nontaxable due to the buyer being an exempt organization such as a non-profit or church — also catch auditor eyes. Ensure your business documents exempt sales with all appropriate forms to protect yourself during an audit.
There are many other reasons a sales tax audit could be triggered. Businesses that keep solid documentation, maintain knowledge of tax regulations, and strive to follow all rules are least likely to have a serious problem if an audit occurs.
Source: Forbes, “What Triggers A Sales And Use Tax Audit?” Cara Griffith, Feb. 25, 2014