What are the top 10 sales and use tax audit triggers for 2021?

Wolters Kluwer Tax & Accounting looks at the most common sales and use tax audit triggers across many states and industries.

What: Wolters Kluwer Tax & Accounting experts have interviewed many state revenue authorities and companies across many industries that are facing or having faced sales and use tax audits over the last year to determine activities businesses engage in or things they fail to do in meeting their sales and use tax obligations that are most likely to lead to a sales and use tax audit. The result was a top ten list of audit triggers.

Why: Being aware of the most prevalent business activities that are most likely to result in sales and use tax audits is important to companies and their tax advisors for three primary reasons:

• It provides a clear understanding of what auditors are likely to be looking for, thereby, helping companies prepare for the audit
• It reduces the time that a company will spend during the audit
• It will surface actions that a company should take going forward to reduce or even eliminate future sales and use tax audits

The Top Ten Audit Triggers:

1. Prior sales and use tax audit liabilities
2. Pattern of late or irregular sales and use tax filings
3. Amount of exempt sales compared to gross sales reported on sales and use tax returns
4. Industries that are frequent sales and use tax audit targets
5. Type of business entity
6. Changes in a state’s sales and use tax law
7. Business closure, dissolution, or bankruptcy
8. Supplier or vendor sales and use tax audits
9. Regularly scheduled audits for a state’s largest taxpayers'
10. Whistleblowers or referrals from third parties

Sales and use tax audits have become more of a fact of life for businesses across most industries. Predicting what makes a company more vulnerable to a sales and use tax audit is a valuable exercise that can save businesses time and money. And, knowing what could trigger an audit can help businesses prepare for what may be inevitable.

Who: Tax expert Mark Friedlich, CPA, Esq., and vice president of US Government Affairs at Wolters Kluwer Tax & Accounting North America, can help discuss these sales and use tax audit triggers in more detail.

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.