Risky Business: 5 Industries that Raise Audit Red Flags

Posted by Ashley Lemus on Wed, Mar 15, 2017 @ 11:22 AM

States target certain businesses for sales tax audits according to data

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For most companies, the mere idea of a sales tax audit is a daunting prospect, and probably the most common of strategies is a “fingers crossed we don’t get picked” approach. But for certain types of businesses, just doing what you do can be enough to attract the attention of the state auditor.

According to state departments of revenue data, certain industries are at a higher risk of being audited simply based on how sales and use tax regulations impact their business. The more complex the rules, the higher the odds that errors or oversights will happen. These mistakes can be costly – both for states that are missing out on tax revenues and the companies that fall short on compliance.

 

The audit process uncovered

Unless you’ve been through an audit before, you likely have no idea what to expect, never mind why the state is looking at you or why your business has been selected for an audit. Sometimes, companies are chosen at random. But more often, something you are doing (or not doing) in your business has raised the red flag for state auditors.

 

Sales and Use Tax Audits Uncovered, a new report by Avalara and Peisner and Johnson, aims to set the record straight on why some businesses get audited more than others and the behaviors driving these trends. Analysis compiled from real audit data from two of the four Big Four states, Texas and California, and findings from more than 64,000 audits conducted over a 27-year period went into the writing of the report. Some interesting patterns emerged from this data on the types of companies that tend to get audited, the reasons why they get audited, and what activities make them more vulnerable to an audit.

 

For example:

  • 60% of audits target only four industries
  • One-third of audits are now conducted out of state
  • The two most frequently identified audit errors are improperly managing exempt sales and out-of-state purchases

 

 Avalara avatax saves your business thousands in manual tax compliance costs

 

Lax tax practices are red flags

The study found that certain factors, such as audit history and having a high ratio of exempt sales to total sales, led to a higher risk of being audited. While these seem straightforward, other characteristics like industry type are less understood. What exactly is it that puts these businesses in the state auditors’ crosshairs when it comes to tax compliance?

 

For starters, certain tax practices can put any business at greater risk of audit. According to the California Board of Equalization, the top three most frequently seen problems are: 

  • Not charging tax on out-of-state sales
  • Recorded versus reported difference in taxes collected and remitted
  • Not properly documenting tax-exempt sales

 

Which industries are a target

According to audit data, the industries targeted most by auditors are Retail, Food Service, Manufacturing, Wholesale (/Distribution), and Construction. These were ranked in the top five in both California and Texas. It’s likely that these industries attract attention based on the types of compliance errors auditors uncover when auditing these businesses. For example, sales tax nexus was a common hurdle shared among all five of these industries. Not surprising, given that states have vastly changed the definition and thresholds for nexus beyond the physical presence standards.

 

Beyond nexus, audit triggers were more specific to the tax complexities experienced by each industry. For example, product taxability can be especially burdensome for retailers, wholesalers, and food services, especially given how differently states tax different products and services. Use tax and exempt sales tends to trip up manufacturers and construction companies. And drop shipping can complicate compliance for distribution companies. These and other audit triggers are covered in more depth in the report, along with audit profiles and outcomes for each of the high-risk industries.

 

The report also reveals that states are getting more serious about sales tax audits — especially in recouping lost revenues from ecommerce sales — hiring more auditors and focusing greater efforts on audits conducted out of state. What exactly does being caught in non-compliance cost nowadays? According to Wakefield Research, small to mid-size businesses are out approximately $114,000 in taxes, fees and penalties if auditors find problems. It can be nearly four times that amount for larger firms. 

 

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Reduce risk with sales tax automation

While you may not be able to head off a sales tax audit forever, you can make the process far less painful by managing tax compliance more efficiently. This starts with having a clear understanding of your tax obligations and a reliable way to ensure you can comply with them — now and should they change. Tax automation software like Avalara can provide this assurance.

 

Get your free copy of the Sales and Use Tax Audits Uncovered report to learn more about audit triggers, how to avoid them, and how to protect your business against unnecessary tax compliance risk. 

 

We would love to speak with you about how Avalara and Klear Systems can benefit your organization.

Give us a call at (949) 681-8135,
email us at info@klearsystems.com
or complete the form below and we’ll reach out to you.

 

I Want to Learn More!

Tags: Manufacturing, Distribution, Avalara, Sales Tax

6 Most Common Sales Tax Return & Filing Errors Webinar

Posted by Ashley Lemus on Thu, Mar 09, 2017 @ 10:07 AM

Sales tax filing and reporting rules vary between jurisdictions in major ways.

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Each state has unique filing schedules, forms, payment thresholds and other administrative requirements that make staying on top of returns challenging. Following a few best practices can help you avoid costly penalties and fines.

Join sales tax compliance and tax technology expert John Sallese as he explains:

  • Which part of the rseturns process is the biggest area of tax risk
  • How to identify whether your business has “nexus’ and should file in multiple states
  • The most common remittance errors
  • What typically happens when you fail to register

 

Register today for this highly informative webinar, hosted by Avalara, on the 6 Most Common Sales Tax Return and Filing Errors. Space is limited!

 

Register Now!

Date: Wednesday, March 22

Time: 11:00AM PT / 2:00PM ET

Duration: One hour

 

We would love to speak with you about how Avalara and Klear Systems can benefit your organization.

Give us a call at (949) 681-8135,
email us at info@klearsystems.com
or complete the form below and we’ll reach out to you.

I Want to Learn More!

 

Tags: Avalara, Webinar, Sales Tax

2017 Sales Tax Changes Webinar

Posted by Ashley Lemus on Fri, Feb 10, 2017 @ 03:12 PM

Do you know which sales tax changes will affect your small business in 2017?

 
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Join Sage on Thursday, February 16th as they bring in their sales tax experts to explain what the State and Federal government have in store for all things sales and use tax.

 

This highly informational webinar will cover:

  • Federal and state-by-state changes that may impact your business
  • How new legislation is changing the sales tax landscape
  • New rules on taxability of products and services across many industries

 

Date: Thursday, February 16, 2017
Time: 11:00 AM Pacific Standard Time

 

 It's important to understand the rules, protect your business and stay ahead of the changes.  You don't want to miss out!

I Don't Want to Miss Out!

 

Tags: Sage Software, Webinar, Sales Tax

Webinar Alert: 5 Reasons Every High Growth Company Stumbles with Sales Tax

Posted by Ashley Lemus on Mon, Jan 16, 2017 @ 04:42 PM

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Is your SMB growing at a high rate but experiencing some difficulties with sales tax?

 

Register now to learn 5 Reasons Every

High Growth Company Stumbles with Sales Tax

Date: Tuesday, Jan. 17
Time: 2:00 PM ET / 11:00 AM PT

Managing sales tax is definitely a challenge many organizations encounter when it comes to growing their business.  That's why it's an important activity to keep on your company's radar.

Join Avalara, an industry leader in Sales Tax preparation, presents the Growth, Change, and Sales Tax webinar as they teach you how to manage sales tax as a growing company should, with minimal effort and complete accuracy.  

 

Gain insight into:
  • 5 activities that put growing companies in tax risk
  • Expert advice from a sales tax expert

 

You'll also be invited to participate in an interactive Q&A with the presenter, as well as receive a free recording and cheat sheet guide.

 

Busy on January 17? Register anyway and you'll still receive the recording—free of charge!

 

Register now

Date: Tuesday, Jan. 17
Time: 2:00 PM ET / 11:00 AM PT

 

New to Avalara? We would love to speak with you about how both
Klear Systems and Avalara can benefit your organization. 
 
Give us a call at (949) 681-8135,
email us at info@klearsystems.com
or complete the form below and we’ll reach out to you.

 

Tags: Avalara, Webinar, Small Business, Sales Tax

How to Automate Sales Tax Compliance on Drop Shipments

Posted by Ashley Lemus on Wed, Dec 28, 2016 @ 04:31 PM

Webinar Wednesday: How to Automate Sales Tax Compliance on Drop Shipments

 

Join V-Technologies as they partner with Avalara to discuss how an integrated sales tax compliance and shipping solution saves time by reducing the risk of audits.

 

Complimentary Webinar

Wednesday, January 4, 2016

10 AM PT / 1 PM ET

 

You won't want to miss this complimentary webinar, where you will learn how to:

1. Automate sales tax compliance:

  • Sales tax and drop shipment complexities
  • When to apply sales tax in relation to vendors, third parties and customers
  • The rules of establishing nexus state to state
  • Who is reponsible for sales tax collection

 

2. Save time and money in shipping:

  • Rate quote during sales order entry
  • Automatically apply sales tax on drop shipment based on rules above
  • Eliminate manual re-keying of data into carrier systems
  • Custom emails to build your brand and increase recurring sales

 

 

 

We would love to speak with you about how Klear Systems can benefit your organization.

Give us a call at (949) 681-8135,
email us at info@klearsystems.com
or complete the form below and we’ll reach out to you.

I Want to Learn More!

 

Tags: Enterprise Resource Planning, Webinar, Small Business, Sales Tax