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.
Please remember that Tax Matters 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 Tax Matters are those of the authors and do not necessarily reflect the official policy, position, or opinion of Vertex Inc.