The California Department of Tax and Fee Administration (CDTFA) conducts audits related to state sales taxes. Any business dealing with intangible goods is required to charge a sales tax on those goods and remit it to the proper state tax authorities. The amount can vary depending on where your business is based and what you sell. This can require extensive record-keeping to ensure you are paying what you owe. If you fail to remit sales tax revenue as required, you could be subject to an audit by the CDTFA. At the Tax Law Offices of David W. Klasing, our tax attorneys have decades of experience and tons of success in helping our clients handle these audits and working to bring them to the best possible resolution.
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CDTFA audits can be very thorough. You may be required to produce records and receipts related to every sale you have made, going back at least several years. Generally, the sales tax auditor will begin the process by comparing the total sales recorded on the taxpayer’s books to the total sales reported on their return. They will also compare the California sales tax reimbursement collected to the amount reported on your returns.
CDTFA auditors are known to get creative and to switch up their tactics depending upon which industry they are investigating. For example, one of the industries where sales tax audits are common is the bar and restaurant business. When performing a sales tax audit for a bar, the auditor will often conduct what is known as the undercover pour test. They will examine the amount of liquor poured into each drink to ensure that sales taxes are properly being paid on the full amount.
As soon as you learn that you are going to face a sales tax audit by the CDTFA, you should contact an experienced tax law attorney like those at the Tax Law Offices of David W. Klasing. Our Tax Lawyers and CPAs can begin by assessing your situation ourselves and then can work on negotiating a reasonable settlement with the IRS based on our findings and their investigation. We will work to make sure that your records are properly reconstructed, where necessary, and that, if you owe money, you are not charged one cent more than what you owe. We can also help negotiate payment plans.
At the end of the sales tax audit process, there is always an exit interview with the auditor. The auditor’s supervisor also attends sometimes. This meeting can function as a sort of settlement conference where the auditor and your attorney can work out a resolution to your case. The auditor will propose sales tax bills for taxes they believe you owe and can also propose additional penalties in some cases. Your lawyer will work to eliminate penalties and reduce what you owe.
If the result of this exit conference is not satisfactory, and no settlement can be reached, the CDTFA will issue a “Notice of Determination” informing you the amount you have been assessed as owing by the auditor. If you file a petition for reconsideration, you will have another chance to negotiate a settlement. After this, there will be a potential appeals process. However, it is always an uphill battle to prove that the CDTFA’s audit was erroneous in any way. In the experience of our lawyers at the Tax Law Offices of David W. Klasing, the best settlement is often reached at the audit level.
It is important to note that your attorney must file a petition challenging the information set out in the Notice of Determination within 30 days of its issuance. Once this petition is filed, the matter will be referred to the CDTFA’s settlement division. At this point, there will be another chance for your lawyer to negotiate with a settlement manager and argue that the auditor overcharged you. There may also be a hearing before a CDTFA hearing officer if necessary.
If efforts at the settlement division are not fruitful, then the matter will be referred to the Office of Tax Appeals for a formal appeal of the auditor’s findings. Your lawyer will then present your case before a three-member panel of Administrative Law Judges (ALJ)s, who will issue a decision following a review of the evidence. As noted above, appeals are rarely successful at this stage. It is best to consult with an experienced tax lawyer like those at the Tax Law Offices of David W. Klasing who can advise you on the strength of your case and the pluses and minuses of continuing the appeals process vs. accepting the settlement offer.
Sales tax audits by the CDTFA can be intrusive and require large amounts of records. If the CDTFA believes you owe back taxes, it may be in your best interest to work out some sort of settlement at the audit stage. At the Tax Law Offices of David W. Klasing, our seasoned tax attorneys have years of experience negotiating with the CDTFA and helping to bring our clients’ cases to a successful conclusion. To schedule a consultation, call our office today at (800) 681-1295.
Regardless of your business needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.
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