Sales Tax Audits and the Perils of Poor Record Keeping

If your business is selected for a sales tax audit in New York State you will be asked to produce your records. Among other things, auditors will ask for financial statements, journals, ledgers, invoices, tax returns, bank statements and canceled checks. If a business cannot come up with enough evidence to support their business activities, auditors can resort to other means of determining sales tax liability.

These other means, known as indirect audits, consist of techniques designed to allow the auditor to estimate your taxable sales. That might mean observing daily sales activity, applying a markup percentage to your purchases, or using external business indices. Whatever method is applied, it is likely that you won’t like the result and will try to fight. Without good records you face an uphill battle.

The obligation of the business owner is to provide “clear and convincing evidence”. If you don’t have good records you can’t meet this standard. Record keeping does not have to difficult or time consuming. There are many tools at your disposal and we are available to help.

The time to act is now. Don’t wait until its too late to find out that your records are not up to par.

For more information, contact our office.

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