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The Audit Conference in a California Sales Tax Audit

The Audit conference is an important step in any sales tax audit. The pre-audit conference is a meeting prior to the start of the audit between the taxpayer and all the representative and the auditor discuss any opening issues in the audit. Usually, at the pre-audit conferences where the audit plan is going to be formulated. Although the audit plan can be crafted even before the pre-audit conference but the pre-audit conference is the best chance to kind of do some reconnaissance on what the board’s position is and what it knows about the client.

For example, that one of the very first things you’re going to want to suss out is, why the client was audited? Which the auditor will pretty freely tell you. Some clients are audited just because of the industry that they’re in. If they are a construction contractor or a restaurant or any of the businesses or occupational categories that have a high potential for abuse then that is one reason why people get audited. The other reason people get audited is because their statistics don’t match up with what the board has on file.

If the Board reports a markup percentage for restaurants in the San Diego-California area and your client either falls above or below that percentage then the board is going to want to audit the client to investigate that issue a little bit more. Sometimes, the board picks up third party information particularly with used tax audits or with audits of tax paid on purchases. They will be turned on to the client based on a disclosure from a vendor or from one of the client’s customers.

All of that stuff is very important. The more information you can glean from the auditor during the opening conference, the better positioned you are going to be to steer the direction of the audit and to know where you’re going. The Pre-audit conference is also a way to establish the ground rules of the audit. It’s a way to get engaged with the auditor to learn that person’s personality and to navigate through any issues that you can. Timing is often a big problem for clients. Clients don’t like to be rushed to production of documents. Documents involved in a sales tax audit is fairly voluminous.

You can address any short timing issues up front and because of the pace of sales tax audits and out of the general workflow of the Board of Equalization, you had a lot of freedom there to discuss any timing issues or anything like that. The pre-audit conference is a great opportunity to just work things out. It’s kind of a meet and greet and it’s a very good way of navigating through the audit and setting yourself up for the maximum amount of success. The opening conference and the audit is probably the most important meeting over the overall course of the audit. The opening conference is the initial production of documents and really sets the tone for the direction that the audit is going to go.

If your client appears to be well organized and that the records are well maintained, then you’re going to have a much easier time in the audit. The mistake that most people make for the opening conference is that they come unprepared even at the expense of pushing the opening conference. You always want to show up for the opening conference with an adequate level of preparation. You want to make sure that you’ve addressed any issues in the pre-audit meeting or with the audit plan and you want to come essentially ready to go. The initial document production to the auditor is extremely important because it allows you to set the tone for how the audit is going to go.

Hopefully, you’ve been successful in narrowing the scope of the audit down to a quarter and then hopefully what you’ve done is essentially pre-audited the client. To the extent possibly, you want to do the auditor’s job before the audit by making sure their bank statements, their merchant account statements, their federal income tax returns and their sales tax returns all match. If that information doesn’t match, you want to explain out any discrepancies that you have or that might be had in the audit. Otherwise, you’re going to have a problem to the extent you can gather sales records and invoices.

You want to have all of that information available for the auditor or you want to delay the production of that information until you are reasonably prepared to deal with the consequences. By knowing all the facts and walking in and being able to present your audit in the best manner possible, you’re going to set yourself up for a lot of success.

The key to really any sales tax audit other than the integrity of your data is the presentation. The better you present, the better you convince the auditor. Again, it goes right back to helping the auditor write their report and get you through the audit quickly and cleanly as possible.

The more information you give them, the cleaner everything looks, the cleaner that report can be written and the better explained it is, the more success that you’re going to have in the audit.

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The Audit Conference in a California Sales Tax Audit


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