Sales Tax Audit Defense – Former Florida Sales Tax Auditor, Tax Tips
These are Questions the Florida Sales Tax Auditor will probably ask and procedures the auditor will use to conduct the sales and use tax audit.
In addition to knowing why your company was selected for audit, it is also helpful to know in advance what type of questions the auditor will ask, how the auditor will conduct the audit, what the auditor will focus on and what types of documentation will be examined.
The Florida Sales Tax Auditors job
Remember that the auditor’s job is to find unreported or under reported revenue and use tax from purchases that did not have the proper sales tax paid and therefore the questions will be focused in the areas of high dollar recovery.
On the sales tax side expect the auditor to perform a high-level review of items such as:
• sales on the books as compared to sales per state sales tax return
• sales per federal income tax returns compared to sales per state sales tax returns
• deposits per bank statements compared to sales per sales tax returns
• an analysis of the sales tax payable account to the sales tax actually remitted
• verify that tax being collected is at the correct rate for location(s)
• verify that discretionary taxes are being properly calculated and remitted
• review internal controls for a recorded/undocumented sales
• review a representative test of each revenue account
On the use tax side, look for the auditor to focus on such items as:
• purchases from out-of-state vendors of items that were not resold to consumers
• Review depreciation schedules and/or check register for assets purchased during the audit.
• Review County tangible personal property tax returns for asset acquisitions
• purchases of fixed assets and fixed asset additions
• Internet purchases
• verify and trace accruals from source documents to general ledgers and sales tax reports
• analyze consumables pulled from inventory
• analyze leases of tangible personal property for compliance
For commercial rent expect the auditor to focus on:
• rental income – ensure tax was collected on all components of rent
• rental expense – ensure tax was paid on all components of rent
• on rent paid – ensure that the landlord is properly registered with the state of Florida
Expect the auditor to perform detailed tests
Expect the auditor to perform detailed tests such as tracing individual transactions involving sales and use taxes to the company’s accounting system, validating that tax rates billed on transactions are correct at the time of the billing, and verifying that current resale certificates are on hand for the customers claiming exempt status.
Electronic auditing, or e-Auditing,
Electronic auditing, or e-Auditing, is computer-assisted auditing using electronic records to complete all or part of the audit. If you use a computer to record your business activity and keep this data electronically, you are a candidate for an electronic audit.
Electronic records are preferred because it is the most accurate and efficient method of conducting an audit.
Documentation to conduct the audit
From the documentation standpoint, the auditor will likely start with a questionnaire to obtain general information about the business, ownership structure, and the market it serves.
The auditor is likely to request access to and inspect documents such as:
• the companies federal income tax returns for the period under audit
• chart of accounts
• trial balances and general ledgers
• sales journals
• invoices, receipts and credit memos supporting sales transactions
• exemption certificates for customers
• purchase journals and records
• cash disbursement journals
• bank statements
• fixed asset registers and depreciation schedules
How a Florida Department of Revenue may conduct a Sales and Use Tax Audit
Whereas when the company being audited and the Florida Department of revenue agree that the records are so voluminous in nature and substance that sampling is an effective, expedient, and adequate method to facilitate the audit.
The process of Selecting the Sample:
The first step in selecting the sample is to identify the sampling frame. The sampling frame is a group of items from which the sample is drawn or a listing of sampling units. In a homogeneous sampling frame, any item in the frame is representative of any other item; therefore, a random selection of all items in the frame will be representative.
The auditor determines how the accounting records are physically stored and available in order to identify the sampling frame.
Typically, accounting records have numbered sampling frames or non-numbered sampling frames, or they may have a combination of both. Both numbered and non-numbered sampling frames can be randomly sampled using WinSample.
WinSample is a software program developed by the Department of Revenue’s General Tax Administration’s Statistics Team and Applied Technology.
WinSample randomly selects sample points from many possible sampling frames using a seed number.
WinSample may be used when taxpayer records are not available in an electronic format suitable for stratified statistical sampling or e-Auditing. Numbered sampling frames include source documents that are consecutively numbered.
Some examples are:
• Invoice numbers
• Voucher numbers
• Check numbers Non-numbered sampling frames include source documents that have no natural numbering system.
Although not consecutively numbered, a random sample of the transactions may still be identified.
Some examples of non-numbered sampling frames supported in WinSample are:
• Time periods (days, weeks, months, quarters)
• Journals (with page numbers and multiple lines on each page)
• Imaged documents
• Microfiche
After the sampling frame is identified, data integrity tests for each sampling frame will be performed.
Data integrity tests will be performed on both numbered and non-numbered populations.
We are a full-service tax firm that specializes in federal state tax representation and are one of Florida’s most experienced for sales tax audit defense.
Our staff consists of tax attorneys, certified public accountants, former IRS agents in a former sales tax agent with over 16 years of direct work experience with the Florida Department of revenue.
Feel free to contact us for initial tax consulting for Florida sales tax audit defense.
We will completely review your case and give you a full assessment of your audit status so you can make an informed and confident decision how to fully resolve your sales tax audit case.
We are a full-service tax firm that specializes in federal state tax representation and are one of Florida’s most experienced for sales tax audit defense.
Our staff consists of tax attorneys, certified public accountants, former IRS agents in a former sales tax agent with over 16 years of direct work experience with the Florida Department of revenue.
