Sales, Use and International Tax Activity Update - April 2009

“Time” for Sales and Use Audit Regulations in California

Background

Currently, the Board of Equalization (BOE) does not have a regulation describing general audit procedures with respect to sales and use taxes.

The BOE believes a new regulation should be adopted that would outline general audit procedures and include the expectation that sales and use tax audits be resolved within a two-year period.

In recent years, the BOE stated in a discussion paper that it has noticed a definite trend by taxpayers and their representatives to delay starting or completing audits. Another common pattern is to avoid or delay providing requested information for an examination. The BOE states some audits have gone unresolved for years; some with hundreds of audit hours spent in attempting to secure the requested books and records. In consultation with the Franchise Tax Board which has an audit procedure regulation the BOE has formed several proposals.

Summary of Proposals

• The Board will not hold in abeyance the start of a subsequent audit pending the conclusion of a current or prior audit.
• At the opening conference, the auditor will provide a written document stating the name and phone number of the audit supervisor and any designated Computer Audit Specialist assigned to the audit.
• The audit plan prepared at the beginning of the audit will be discussed with and provided to the taxpayer or taxpayer’s representative at the opening conference. The audit plan should be signed by both the auditor and the taxpayer or taxpayer’s representative to show a commitment by both parties that the audit will be conducted in the manner discussed to allow for the completion of the audit within two years.
• As a general rule, the taxpayer will have a maximum of 30 days to respond to a written Information/Document Request. However, the auditor may allow additional time if the auditor believes it is warranted.
• The BOE approved sponsoring legislation to amend Revenue and Taxation Code section 7054 to authorize the Board to impose a 25% penalty when a taxpayer fails or refuses to timely or completely furnish any information, documents, or books and records (including electronic records) requested in writing by the BOE during an examination or audit engagement, unless the failure is due to reasonable cause and is not due to willful neglect. Currently, the Board is seeking an author for the bill. If the proposed legislation is enacted, the provisions will be incorporated into proposed Regulation.

 

The full proposed regulation may be viewed on the California State Board of Equalization Website.

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