There is no denying that a sales tax audit is not a pleasant encounter with the New York State Tax Department. I guess any interaction with the tax authorities is likely to produce an uncomfortable experience but going through a detailed sales tax audit is like going to the dentist. As a tax attorney who assists clients with providing guidance through all phases of the sales tax audit process the goal is to have the audit produce minimal pain and little financial loss.
Through many tax audits, I have gained an original perspective on the motivations on the State Tax Department to improve their taxing abilities by being aggressive with imposing taxes. As troubling as this may appear, it must be remembered that the best offense is a great defense. In many cases, a typical client does not spend the time to compile the necessary and sufficient documents to meet the needs of the auditors. This is a huge mistake, but you may ask why do we care about the tax auditors, and if they review the right records? In a few words, they will make your life hell if your records are poor. Often, most taxpayers do not have the correct records, so the first step is to organize their records which will make the audit go much better, and reduce the cost of crazy wild guesses by the tax department in their quest to create a tax bill. Any time a client does not have ample tax records, the tax laws and regulations allow the state to start calculating the taxable sales, and they never come out on the low side.
Seeing that having good records can be so critical to a successful sales tax audit, I spend a lot of time with my clients to organize and improve their sales tax records before the audit begins. They are often shocked at the level of detail we make their records. When the actual audit starts, we (my client and I) sit along with the auditors and be available to answer questions and try to manage the process. Trying to influence the auditor is key, and honey works better than vinegar, if you know what I mean. Most clients are uncomfortable at first being at the sales tax exam, but after a while they understand the value in being there to help reduce their tax bill. Also, by showing our real human side and showing that we will not be bullied around, in all times in a friendly nonetheless productive manner, a positive difference can be had. If the sales tax auditor is being debilitating to constructive progress, then we can ask to speak to the persons supervisor and division group manager if we decide that would be productive. If all else fails, and where the client’s records have no value we try to reach a low tax settlement. In the conciliation conference, a mediation comes about between the taxpayer and tax department to come to a settlement. Often the results of this process are very good, and a reasonable result can be obtained to lower the tax bill to amount that can be paid all at once, or a reasonable payment plan can be established.