Here are some sales and use tax audit tips from The Colorado Tax Audit Coalition (CTAC).

CTAC is primarily made up of auditors and audit supervisors of  Home-rule cities in Colorado.  There are also some non-government, industry representatives like myself.  There is good advice in the tips they provided.   They are brief highlights, so please ask if you’d like further understanding or clarification.  As Taxpayer representatives, we have also some additional tips available.

• Report taxes correctly the first time.
  • Make sure you have good records that document when, where and at what rate taxes are charged
  • Keep a record of the support used to file each tax return
• Review the audit period and know what any outliers or uncommon occurrences happened and be transparent with the auditor
• Give the auditors the documents they ask for.
  • Unnecessary documentation provided slows down the auditors’ progress
  • Not providing records also does not help the audit progress
• Be professional
• Know what do to and how to document use tax reporting on items used consumed, stored and not directly resold
  Inventory transfers
  • Promotional giveaways to promote sales (even includes free samples to customers)
  • Charitable donations
  • Fixed assets purchasing where tax was not collected by the vendor
  • Withdrawn inventory
• Keep exemption documentation to support any nontaxed deductions and make sure standing exemptions are current
• Other items to be aware of that may raise questions during an audit review.
  • High volume of exempt sales.
  • Claiming frequent refunds or large tax credits can be a red flag.
  • Errors on filed returns. Continuous filing errors generally trigger notices of inquiry and potential estimated assessments. These are red flags and could trigger an audit.
  • Continuous late filing.
  • Whistleblowers. Competitors and disgruntled employees have been known to contact tax departments.
  • Audits of customers. Not properly collecting tax from customers may be detected in an audit of the customer.
  • Not correcting your errors from prior audits

Alan Smith
Sales Tax Colorado, LLC
www.salestaxcolorado.com