‍Don’t Panic: There is no reason to panic but it is very important to not ignore the notice. An audit could have been generated on your company for a number of different reasons but that does not automatically mean that you will end up owing additional tax.  There are some situations where you might even be entitled to a refund.

‍Read the Notice to Verify the Audit Period: Texas has a 4-year statute of limitations so the audits normally cover 4 years.

‍Respond Timely: Missing the requested return due date could cause increased scrutiny.

Sales/use tax returns for the audit period

Workpapers to support the sales/use tax returns

‍Charts of accounts and financial statements

General ledgers and trial balances

‍Sales invoices and resale and exemption certificates

Purchase invoices and capital asset records

Bank statements

Reconcile sales reported on returns to make sure they match financial statements and federal income tax returns. Keep in mind that sales tax is reported on a separate entity basis even if an entity is disregarded for federal tax purposes.

Review nontaxed Texas sales and verify that valid resale or exemption certificates are on file. Immediately request any missing certificates.

‍Evaluate taxability decisions made for different types of sales (e.g. delivery, installation for tangible personal property; data processing for taxable services)

‍Review purchases to confirm that use tax was reported if vendors did not charge sales tax on taxable transactions.

‍Gather contracts and purchase orders that might be needed for the auditor to understand transactions.

Determine the process for the auditor to review sales or purchase invoices if requested.

Appoint a single point of contact.

Execute a Power of Attorney for anyone outside the company that may need to interact with the auditor.

Make sure any samples selected by the auditor include accounts that could benefit the company.

Ask the auditor to direct all questions to the single point of contact and also ask employees within the company to defer to the point of contact if the auditor asks them any questions.

Respond as quickly as possible to requests from the auditor. It is preferable that you are waiting on the auditor rather than the auditor waiting on you.

‍Remember that auditors are people too!!  Be respectful and helpful to the auditors and you will have a better audit experience. Auditors meet regularly with their supervisors and one topic is aged audits. Auditors want to close the audit as quickly as you do.

Taxpayers generally deal with a Texas sales tax audit once every four years.  Experienced state & local tax professionals often have handled hundreds of sales tax audits for clients.

Texas audit notices are public record which results in some firms  aggressively calling companies under audit. Consider evaluating several experienced firms rather than going with the first firm that calls you.

If you hire a firm for audit assistance on a contingent fee basis, make sure you are kept updated on the status of the audit so that the starting point for the fee calculation is not an unnecessarily high number.