How to Reduce the Cost of a Sales and Use Tax Audit
Being audited by the State of Texas for Sales and Use Tax for many people is very similar to being sued. Many times taxpayers aren’t even aware that the State would audit them. They aren’t aware that they can be audited for Sales and Use tax. Use tax is the tax that you pay to your vendors when you purchase taxable items and services from them. Many taxpayers believe that if their vendors didn’t charge them tax, the State will just go audit their vendor and make the vendor pay the tax. In many cases, that is true and its call an “audit lead”. That doesn’t mean they won’t make you pay the tax. Technically, you as the purchaser have the ultimate responsibility for the tax on your purchases. But I digress, yes, the State will audit you to make sure you are taxing your customers properly and that you are paying tax to your vendors properly. And yes, they will probably go audit your vendors too. If they aren’t taxing you right, they probably aren’t taxing many of their customers right.
If you were being sued would you represent yourself in court? What if the attorney you considered hiring told you that they knew exactly how long this suit would take and how much time they would spend defending you? Would you believe that attorney? If you would, you shouldn’t. How does the attorney know how long the case will take? How does the attorney know what the other party is going to bring to the lawsuit that will require him or her to respond to or do additional work on your behalf? If you were being sued, you would want to hire the best possible attorney to ensure that you came out of the lawsuit as quickly and painlessly as possible. You would hire an attorney who instilled confidence in you that they had your best interest at heart.
So if being audited is similar to being sued, would you hire a tax consultant who told you how long the audit would take or how many hours they will bill you for the audit? What if the auditor who’s been assigned to your audit is fairly new and they don’t have a good grasp of the tax laws for your industry? What if the auditor doesn’t take the time to learn your business well enough to know how to properly audit you? What if the auditor decides to sample your transactions but doesn’t really understand the concept very well? What if they don’t understand your data that they’re using to create the sample? These are all very real things that happen when the auditor comes through the door. And that’s if they like you. What if they have decided before they arrive at your business that you are stealing from the State and they are going to find it! How could any tax consultant guarantee you how long it will take to defend your audit when they don’t know what the other side is going to bring to the table? Yes, there are many auditors that we have worked with over the years and we know what to expect from them but there are new auditors all the time being hired at the State. I had a conversation with a former auditor with the State of Texas recently. He was with the State for 35 years. We were discussing a particular audit that I was working on and I made the comment that I was dumbfounded at why this auditor did what he did. The response from the ex-State auditor was “now, take it easy on these auditors, they aren’t very well trained, it’s really not their fault”!
We are asked quite frequently how many hours defending a Texas Sales and Use Tax audit takes. People want a realistic expectation for what they will be billed and that’s understandable. Beware of those consultants in the Texas sales and use tax industry who tell you that they can defend your audit for a specific number of hours or if they will only charge you a flat fee to defend you. Streamline has been representing Texas taxpayers in sales and use tax audits for fourteen years. We are the leader in audit defense for the small to medium sized business in Texas. Our audit defense process ensures that you receive the best possible outcome for your audit. The average number hours for an audit represented by Streamline is twenty. Our pre-audit normally takes about six to eight hours and we work with the auditor through the entrance conference and that’s approximately another six to eight hours. The remainder of the time, we are working with our client and the auditor via phone and email to bring the audit to completion. Now don’t get me wrong, audits can go over twenty hours. Twenty is the average. In a recent analysis we performed of completed audit defense engagements, the highest was 42 hours and the shortest was four hours. The four hour engagement was so short because our consultant and the auditor spoke before the audit started. The auditor was under an incorrect assumption about what the taxpayer’s business was. Once we explained it to her and provided her a few reports to confirm our client’s business, the auditor determined that the audit should be cancelled. That is not a common occurrence!
Again, beware of someone who tells you they know how many hours they will bill you or that they can defend you in a sales tax audit for a flat fee. Remember the old saying: “you get what you pay for”! They are either not being honest with you or they won’t be there when you need them most.
Our mission at Streamline is to exceed expectations and always do the right thing for our clients. We passionately advocate for each client in all areas of taxation and ensure the fair application of tax laws, regulations and policies. Our knowledge, experience and processes are unsurpassed in the industry, which is why we can offer our clients the lowest total end-cost equation.