State revenue departments and state tax authorities have significantly increased sales and use tax enforcement. Expansion of economic nexus standards has increased tax risk for many companies. Now, remote sellers—businesses with no physical presence (e.g., no offices, warehouses, or employees) in a state—can trigger sales and use taxes. So, remote sales activity above certain thresholds can now cause audits and assessments of tax, interest and penalties. An experienced sales tax audit defense lawyer can help assess risk, develop responsive positions on tax technical issues, and negotiate with the state taxing authority to resolve sales tax audits.

Common Sales Tax Audit Issues

State sales tax audits often focus on:

• Economic nexus thresholds
• Product or service taxability
• Exemption documentation
• Historical sales tax exposure

Sales Tax Audit Defense Process & Strategy

• Consider engaging experienced sales tax audit defense counsel as soon as possible.
• Consider Voluntary Disclosure Agreement (VDA) process (if eligible).
• Don’t ignore state tax department correspondence, be proactive, meet deadlines or obtain extensions.
• Carefully evaluate state tax statutes, regulations, and administrative guidance, along with facts, circumstances and issues to assess risk and develop an audit management strategy.
• Develop tax technical and factual support for contested positions and limit audit scope / expansion.
• Prepare responses and supporting documentation (including exemption certificates) and respond to IDRs.
• Obtain audit closure confirmation, negotiate (settlement, repayment plan, penalty abatement, etc.), or prepare for any available appeals.

Contact an experienced sales tax audit defense attorney

Nick Eusanio

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