There’s many things involved in running a successful business. With that it should come as no surprise that prep work for a sales and use tax audit is not a high goal with business owners. There are only so many hours in a day, and many companies put their compliance process on the back burner. At worst, companies ignore the idea entirely. Even business owners who are ready and willing to tackle it rarely know where to begin. But sales and use tax audits don’t have to be a problem that looms in the mind of every business person. Knowing one’s compliance process as it relates to audit risk can make a difference including the Magento tax extension.
How do audits affect your Magento tax extension?
Who’s the Enemy?
First, let’s clarify something. Auditors are not the enemy here, audit risk is. The current tax system is very complex. But, auditors are simply those tasked with checking that business owners honor what’s owed to the state. Every year, it seems there are fewer states not suffering from a budget deficit. As a result, states are finding more ways to increase the amount of sales and use tax revenue. This includes increasing the audit workforce across the country. In short, auditing is easy money. Also, not only are states adding to their audit divisions, but many auditors are setting up shop outside of their home state. They are auditing out-of-state businesses.
So, what do you do if you’re a remote auditor charged with bringing home the bacon? Easy! You target companies with an obligation to collect and remit your state’s tax. You also focus on the industries most prone to error. That list is shorter than you might think. A study Avalara conducted with Peisner Johnson & Company, nearly 60 percent of audits are spread among just four or five industries. Those are retail, manufacturing, construction, wholesale/distribution, and food service. This reality is the basis of the newest Avalara white paper, Sales and Use Tax Audits Uncovered: Who Gets Audited, Why They Get Audited, and the Impact on Companies.
Who Gets Audited
As the white paper reveals, auditors target certain industries because of how they run. Food service companies are often audited because they’re known to not report cash. Also, the main reason auditors target these industries is they historically fail to follow state and local sales and use tax regulations. According to the CA Board of Equalization, the number one error of noncompliance made by businesses involves untaxed purchases from out-of-state vendors. The data suggests that the bulk of audits resulting from these errors came from use tax not being paid. And these are no small assessments. Avalara’s joint study also found the average cost of an audit is approximately $114,000. That’s quite a price to pay for something so avoidable.
Magento Tax Extension and Audits
In the end, when it comes to sales and use tax audits, the best offense is a solid defense. In the white paper, Sales and Use Tax Audits Uncovered, you’ll learn the most common audit triggers for each key industry. You’ll also learn how best to prepare and support yourself before or during an audit. Sales and use tax laws may be tricky, but with the wealth of tools and info available, business owners are in a good position to end risk and safeguard themselves against a costly audit.
For more info on the Magento tax extension, please contact Web 2 Market.