California Sales Tax Lawyer
Is the IRS auditing your business? If so, there is much at stake. An audit involves an intense investigation into your business’s finances and can expose your company to great financial loss. Located in Roseville, California, I represent small businesses throughout the Sacramento area during IRS audits, helping my clients limit their financial liability and safeguard their business reputations.
What Is Sales Tax?
Sales tax is a tax imposed on the sale of goods and services. The tax is calculated as a percentage of the sale price. In California, the sales tax rate is 7.25%. This applies to most goods and services sold in the state, with some exceptions, such as prescription drugs and groceries.
Who Pays Sales Tax?
The seller of the goods or services is responsible for collecting the sales tax from the buyer and remitting it to the state. However, in some cases, the buyer may be responsible for paying the tax directly to the state. This is usually the case when the seller is located out of state or is not registered to collect sales tax in California.
What Is a Sales Tax Audit?
With a sales tax audit, the California Department of Tax and Fee Administration (CDTFA) examines a business’s sales and use tax returns. The purpose of the audit is to make sure the business has reported the correct amount of tax due and has paid all taxes owed. In some cases, the audit may also result in the assessment of penalties and interest.
What Happens During a Sales Tax Audit?
During a sales tax audit, the CDTFA will review the business’s sales and use tax returns for a specific period. The auditor will also examine the business’s records, including invoices, receipts, and bank statements. The auditor uses this information to determine whether the business has reported the correct amount of tax.
Why Would Someone Suddenly Become the Target of a Sales Tax Audit?
There are a few reasons why the CDTFA may audit a business. The most common reasons include:
- The business has filed many sales tax returns with errors. If a business has filed multiple sales tax returns with errors, this may trigger an audit. Businesses must take care to ensure their sales tax returns are accurate and complete. Any errors on a return could unfairly provide an advantage over companies that correctly report their taxes.
- The business has a high sales volume. A company with a high sales volume is more likely to be audited than a business with a low sales volume. This is because there is more money at stake for the state if the business owes unpaid taxes.
- The business is a new business. New businesses are often audited to verify they are appropriately registered with the state and are in compliance with the state’s sales tax laws. The CDTFA, however, may not have a lot of information about the business. The lack of information makes it more difficult to detect errors on the tax return, so it requires a closer examination.
- The business is in a high-risk industry. Certain industries are considered high risk for sales tax noncompliance and tax fraud. These industries include companies that sell taxable goods or services but do not collect sales tax, businesses that deal in cash transactions, and businesses with a history of sales tax audits.
What Are the Consequences of a Sales Tax Audit?
The consequences of a sales tax audit will vary depending on the results of the audit. If the audit finds that the business owes unpaid taxes, the business will be responsible for paying the taxes plus interest and penalties. The amount of interest and penalties depend on the amount of taxes owed and how long the taxes have been unpaid. In some cases, the CDTFA may also file a notice of tax lien against the business, damaging the business’s credit rating and making it difficult to obtain financing.
If the audit finds that the business has overpaid its taxes, the CDTFA will issue a refund for the overpayment. The refund will include any interest and penalties that were assessed on the overpayment.
How Can I Avoid a Sales Tax Audit?
There are a few steps that businesses can take to avoid a sales tax audit:
- Register with the CDTFA. All businesses that sell taxable goods or services in California must register with the CDTFA. This can be done online, by mail, or in person.
- File accurate and complete sales tax returns. It’s crucial to take care when preparing sales tax returns to be sure they are valid and complete. Any errors on a return could trigger an audit.
- Keep good records. Good records are essential for any business, but they are significant for companies that deal with sales tax. During an audit, the CDTFA will examine records such as invoices, receipts, and bank statements. Having good records makes it easier to defend against any allegations of sales tax noncompliance.
- Comply with the law. Compliance with California’s sales tax laws can help avoid an audit. Therefore, businesses should familiarize themselves with the sales tax laws and make sure they are complying.
What Should I Do If I’m Selected for a Sales Tax Audit?
If your business is selected for a sales tax audit, it’s important to cooperate with the CDTFA. The auditor will request certain records and documents, and you want to provide them promptly. If you have questions about the audit or are unsure of how to proceed, you should seek the advice of a tax attorney who is experienced in dealing with sales tax audits.
The value an attorney can provide is twofold:
- First, an attorney can help you to understand the audit process and what is expected of you. This includes understanding what records and documents will be requested and how to respond to the auditor’s questions. There are so many moving parts to a sales tax audit that it can be difficult to keep track of everything, but an experienced attorney can guide you through the process.
- Second, an attorney can help you defend against any allegations of noncompliance with sales tax. If the audit finds that you owe unpaid taxes, an attorney can help you to negotiate a payment plan or reduce the amount of interest and penalties that are owed. Conversely, if the audit finds that you have overpaid your taxes, an attorney can help you to obtain a refund for the overpayment. In either case, an attorney can help you to achieve the best possible outcome.
Don’t Panic — Call Me To Discuss Sales Tax Collections Solutions
I am tax attorney Brian L. Coggins in Roseville, California. I am a former corporate accountant who has been practicing in the area of California and IRS tax law for more than eight years as a tax attorney. I will review your circumstances and explain your options for working with the BOE to find a workable collection solution. From my office in Roseville, I represent businesses facing sales tax audits and tax collections issues. Call 916-270-2895 or contact my office by email to arrange a free initial consultation and evaluation of your tax problem.