These mistakes are crucial information to be aware of to be able to get a good result out of your audit…
1. Dealing With The Auditor
To put it bluntly, the auditor is not your friend! The auditor works for the Department of Revenue. They are not a consultant and they will use any information you give them (whether it’s correct or not) to their advantage. There are exceptions, but the auditor’s goal is generally to separate your business from as much money as they can by identifying as many mistakes (in their opinion) that you have made.
Dealing with auditors is a delicate task. You must realize their job and appreciate their situation. You must also treat them with some degree of professional respect and courtesy. Your goal is to be to provide them with the information that will allow them to complete their work as quickly as possible. Having a good professional relationship with auditors can go a long way when it comes to penalty abatement and the tax treatment of unclear transactions.
Over the years I’ve had clients that took pride in the way the treated auditors. They put them in a small office where it was either too hot or too cold, they spoon fed them information and made the auditor ask multiple times for the same information, and they delayed and stalled on every issue of the audit. It was not surprising, then, that their audits always resulted in large tax assessments, full imposition of penalty, and a very poor success rate on audit appeals.
Treat the auditor as a professional. Keep it polite but remember they are not your tax advocate.
2. Incorrect Or Absent Exemption And Resale Certificates
If you do not possess proper exemption certificates, some auditors may allow you to attempt to get them retroactively, but that is not something you should rely on. As for resale certificates, if they are not on file, the auditor will typically determine an error rate and project backwards to assess tax and penalties—which can be substantial.
3. Unreported Sales
As a cash-based or accrual based business owner, it is your responsibility to ensure that you have the processes and policies in place to capture your sales as accurately as possible—otherwise, you may be subject to a cost of goods audit and significant fines and penalties.
4. Charging The Wrong Sales Tax Rates
New York State has nearly 50 different geographic areas listed in its sales tax schedule, all with varying sales tax rates. It is very difficult to stay on top of these rates and changes to them—having a tax professional available to you to keep you current and in compliance is the best way to avoid this error.
5. Not Recognizing Unique Sales Tax Rules And Regulations
There are many goods and services that your convenience store or bodega sells such as food, beverages, gambling tickets, tobacco, and fuel which are subject to special taxes. It can be very difficult to follow these special tax situations—and tax authorities know it. You may be audited specifically for these types of taxes periodically and if you are found to be non-compliant it can open you up to a full-blown sales tax audit. Having a New York CPA sales tax expert on your side can save you the pain and penalties associated with a increased NYSDTF scrutiny.
6. The Accrual Of Sales Tax
Many convenience stores and bodegas do not properly remit the sales taxes they have collected from their customers. If you are subject to a sales tax audit, your tax returns, general ledgers, invoice registers and actual invoices, sales journals and summaries of sales will be scrutinized. Auditors will use these records to calculate the sales tax that you should have remitted. To avoid having the NYSDTF do these calculations for you, get professional sales tax preparation help from an experienced CPA—before you report and remit your sales tax.
7. Business Acquisitions
If you have acquired another convenience store or bodega, you will need to be extra vigilant about sales tax compliance. If you acquire a business in a different market, you may have a new tax nexus and new tax liabilities to contend with—which may trigger a sales tax audit. Specialized expertise is generally required to ensure that you are properly reporting your pre- and post-acquisition taxes.