Sales tax audit ahead? If you received a letter from the State that you are being audited for sales tax, would you panic or would you be confident that the audit would go smoothly? If you haven’t already been audited, then you will be receiving an audit notice at some time in the future. Here are a few areas to consider:
Have you filed all of your sales and use tax returns?
Businesses are required to file returns on a monthly, quarterly or annual basis depending on the amount of tax they owe. The filing frequency is adjusted annually if needed.
Do you have exemption certificates on file for sales that would be taxable without one?
You don’t need to collect exemption certificates if what you are selling is exempt from tax. If the purchaser of your product or service qualifies to purchase the item or service exempt, you need to have a completed exemption certificate on file. Absent an exemption certificate, you will be responsible to pay the sales tax and I doubt you planned to lose approximately 7% of your profit margin!
Are you able to provide proof that tax was paid on all your fixed asset purchases that are subject to tax?
Specialized equipment is often purchased from out-of-state vendors that are not required to collect MN sales tax, making you responsible to pay use tax.
Have you paid use tax on purchases where sales tax wasn’t charged?
Businesses are required to pay use tax on taxable purchases if the tax wasn’t charged by the vendor. Be knowledgeable about what you are required to pay use tax on and be sure to file and remit the tax.
Know the sales and use tax rules for your business so you won’t need to panic when you receive an audit notice in the mail.