States are Gearing up for Audits – Don’t be a Target!

States have become very creative in identifying how to maximize their revenue. Apart from new rules and regulations around various Nexus provisions, states are hiring more auditors in order to conduct more frequent audits. This trend is expected to increase significantly with the enactment of various Economic Nexus laws across the US.

Furthermore, the good old days of on-premise audits are coming to an end as documentation can easily be shared and distributed online now. Moreover, states are taking advantage of their subpoena powers more often to demand information to get an universal view of transaction across business partner and services.

Auditors are analyzing business connections holistically, which might also include supplier invoices and other documents as part of a use tax audit.

The most common audit protocols are Nexus questionnaires, which are typically sent out via mass mailing to various types of businesses. If you receive a Nexus questionnaires and should decide to ignore it, you are in for potential big trouble in the long run as you could eliminate available settlement options later on. That said, don’t be overeager and voluntarily provide unneeded data; instead be careful about how you complete your Nexus questionnaire and what information you provide to your auditor. If you need help with the questionnaire, best practice here generally involves seeking the support of a professional tax expert so that you provide just the right level of information in your response.

Your best line of defense is to avoid getting into the cross-hair of State auditors in the first place.

This is easier said than done as you might also become an auditing target through your customers, vendors, business partners or transactions. Auditors are analyzing business connections holistically, which might also include supplier invoices and other documents as part of a use tax audit.

If you are in the fortunate position of transacting as a wholesaler, selling your goods and services to resellers can have a huge benefit. In that case, the best way to deal with an audit is to collect and validate all of your tax exemption certificates accurately and ensure that they are renewed on time. 

Consider partnering up with a tax service provider who fits your business needs in terms of usability, cost and commitment.

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