In general, if you disagree with the auditor’s conclusions after he conducts a sales tax audit of your business, you have a few possible remedies. We discuss them in turn.
First, obviously, you can discuss with the auditor how he reached his or her conclusions, and see if an agreement can be reached. The effectiveness of this strategy is often limited. Auditors often take pride in their craft, so questioning their conclusions can be viewed as questioning their professional ability. That said, this will not be true in every case, and sometimes having a straightforward conversation with the auditor can prove effective.
Second, if you still disagree with the auditor’s conclusions, you can discuss the matter with their Board of Equalization audit supervisor. During this meeting, you will explain where you disagree with the auditor’s findings, and indicate ways the disagreement can be resolved. The supervisor will discern whether the audit findings require adjustments. After he or she presents those adjustments to you, you can state any disagreements you still may have.
Shortly after this meeting, the supervisor will issue a Report of Field Audit (or a Report of Investigation), which is “the auditor’s statement of findings and recommendations,” or determination. See Section 201.06 of the BOE’s Handbook: https://www.cdtfa.ca.gov/taxes-and-fees/manuals/am-02.pdf Following the issuance of the Report of Field Audit, you may meet with a Board representative if you continue to disagree with the findings. You will have 10 days after the issuance of the letter to make an appointment with a BOE representative to discuss any disagreements you may have. If your matter remains unresolved, a “Notice of Determination” will be issued.
Third, at this point, you may file a “Petition for Redetermination” provided it is done within 30 days of the issuance of a Notice of Determination. Form BOE-416 may be used for this purpose. See: https://www.cdtfa.ca.gov/formspubs/cdtfa416.pdf The details of filing an appeal for a sales or use tax audit are documented in BOE Publication 17, which is accessible here: https://www.cdtfa.ca.gov/formspubs/pub17.pdf
On your Petition, you should indicate whether, in addition to an Appeals Hearing, you desire to have an Appeals Conference. Normally you will be required to go through an Appeals Conference, even if you did not specifically request one. After the appeals conference, the Appeals Division will prepare a Decision and Recommendation containing an analysis, conclusion, and recommendation for the resolution of your case.
Fourth, after your formal appeal (with the Petition for Redetermination), you can request a hearing before the Board of Equalization. The Board hearing is your opportunity to present oral arguments regarding unresolved matters. You, your attorney, accountant, or another person such as a company executive may represent you. The Board will then make its decision and, about 45 days afterward, will send you a Notice of Redetermination, Notice of Refund, or a different notice. If you dispute the Notice of Redetermination, you can file a petition for rehearing. The Notice of Redetermination indicates whether you owe any tax, fees, penalties, or interest.
Fifth, you can file a claim for refund. However, as a requirement for a refund claim, you must first pay the amount the Board determines you owe even if you disagree. You can then collect that amount if you prevail on the refund claim.
Sixth, if the Board denies your claim for refund, you can continue your tax appeal by filing a lawsuit for a refund in court. A refund suit must be filed within 90 days after the Board mails its Notice of Denial of Claim for Refund.
