How to Audit Sales Taxes That Are Paid
- 1). Contact the business to arrange a time and place for the audit. Inform the contact person of the period under audit and of the business records the auditor will need to complete the audit. The business should have the records readily available and the records should clearly document each sale and the amount of tax collected.
- 2). Obtain reports from the government entity of the taxes paid by the business during the period under audit and for three prior periods. Compare the current reports with prior reports to identify any unusual fluctuations in the taxes paid. The reasons for any unusual fluctuations should be identified during the audit.
- 3). Verify the sales, receipts and taxes collected from the businesses records. First the auditor must determine taxable sales. Some of the sales may have been made to tax-exempt organizations. These should be clearly identified and properly documented with the tax-exempt organizations' information. The auditor should be able to verify that the organization exists, is tax-exempt and made the purchases in question. Once taxable sales are determined and verified, the tax amount is easy to calculate because it is a certain percentage of sales.
- 4). Compare the calculated tax amount to the reports obtained from the government entity. Identify any differences between what the auditor determined as the amount due the government entity and the amount actually paid and determine the reason for the differences. These calculations should be done on a monthly basis to coincide with the payments and reports made each month by the business.
- 5). Determine if the business owes the government entity for any taxes due that were not remitted. Also determine if the business owes interest penalties and/or fines for any misreporting during the period under audit.
- 6). Write the audit report to the government entity so that it can collect any taxes, interest penalties and/or fines that are outstanding. The business should be provided an opportunity to rebut and/or appeal the audit findings. It will be the government entity's responsibility to provide any such opportunity, but the auditors will be involved because they will need to present evidence of their findings.
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