Case Study: Proactive Preparation Eases Sales Tax Audit Fears
Scenario
LarsonAllen presents an annual dealership seminar to keep their clients updated on state sales and use tax law changes. Because dealerships are frequently targeted for sales tax audits, these seminars help dealerships understand their potential exposure. After attending a recent seminar, a LarsonAllen client requested that we analyze the dealership’s sales tax situation in a manner similar to the way it would be audited by the state.
Solution
In a two-day engagement, LarsonAllen used sampling techniques comparable to a state auditor’s approach to a dealership audit. LarsonAllen worked closely with the controller and the accounting staff, examining records and asking many questions. The areas of greatest concern were parts and service sales.
Result
After exploring the client’s operation, LarsonAllen met with the controller of the dealership and explained that it could potentially owe a significant amount of tax if it was audited. LarsonAllen provided an outline of the potential issues and supplied the dealership with detailed recommendations on how to improve their sales and use tax reporting, how to properly address complex warranty repair transactions, and how to track the newly enacted sales tax rates.
The controller was so pleased with the work that he recommended all dealerships take advantage of the service to help educate themselves on tax reporting issues. Putting the necessary processes in place would allow him to successfully defend his tax position if he was audited, and he could confidently move his business forward without worrying about a surprise sales tax liability if a state auditor showed up.
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