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Prepare for the Post-COVID Sales Tax Audit Surge

Tax Returns Outsourcing Services by Vertex Inc.

As businesses return to normal functioning (or, at least a “new normal”) in the uncertain wake of COVID-19, jurisdictional tax auditors are doing the same. We’re seeing stronger enforcement of timelines and increased audits in some jurisdictions. Many companies adopted new business models during the pandemic, and auditors are interested in examining how these organizations have reported potential taxability changes.

For indirect tax teams, now is the time to review any tax changes associated with the products and services you deliver to your customers. That means working closely with the business to fully understand those products and services. Tax changes associated with your portfolio of offerings are easily overlooked until you are sitting with an auditor – and at that point, it is too late. 

Confidence begins with knowing that you have accurately assessed taxes on sales and purchases. Be aware of the common audit triggers. You may be selected for audit as a result of an audit that was conducted on one of your customers or vendors. Incorrect tax returns are another catalyst; understanding how to accurately complete a return is vital. 

If you are selected for an audit, make sure your due diligence is completed before the audit starts; this will help ensure that the audit is completed in a timely fashion. The first step is a thorough records review. For a useful overview of this process, see this report by Diane Yetter for The Sales Tax Institute: Best Practices for Managing a Sales Tax Audit. As Diane points out, this is where you will identify any areas of exposure and determine if there are any missing records. You’ll want to get familiar with the record-keeping processes in your organization – “how records are maintained, by whom they are processed, and where they are stored.”

On the brighter side, your due diligence may turn up exemptions that can benefit your business. Several exemptions are available for manufacturing and R&D, and others may be applicable, depending on your customers.

Disclaimer

Please remember that the Vertex blog provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information. The views and opinions expressed in the Vertex blog are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.

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Larry Mellon, Tax Directory, Vertex Inc

Larry Mellon

Tax Director, Chief Tax Office

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Larry Mellon is a Tax Director in the Chief Tax Office, where he is responsible for providing insights, thought leadership and customer-centric direction to Vertex functional groups, supporting the continued expansion of Vertex indirect tax solutions and overall enterprise strategy. He has over 30 years of experience in sales and use tax compliance, risk assessment, jurisdictional audits, administration and management, as well as VAT compliance. Larry joined Vertex in 2005 as a Sales and Income Tax Supervisor and has served as Tax Manager since 2012, where he has played a pivotal role in elevating and advancing the company’s tax management offerings.

Prior to joining Vertex, Larry served as a Senior Tax Accountant and Property Tax Manager at Foamex International, Inc., a polyurethane and advanced polymer foam product manufacturer and marketer. Mellon also held multiple roles at The Franklin Mint and is a member of the Institute of Professionals in Taxation (IPT) and Tax Executives Institute (TEI).