Sales tax audits are on the rise at a time when compliance is more challenging than ever, according to BDO. The reasons behind the uptick in tax return audits include complex economic nexus laws in U.S. states, ambiguous taxability rules and a shortage of internal resources to assist with compliance.
Understandably, an audit notification is not exactly a cause for celebration for tax groups. However, there’s really no reason to view it negatively if you know you have accurate documentation and therefore, no exposure. In fact, why not see it as a positive event – an opportunity to demonstrate to the business that you’re on top of things?
The right tax technology can help you do that. Is your tax engine up to the task of reducing liability and identifying potential exposures? Here are the key questions to ask:
- Does my indirect tax solution provide a complete understanding of everything we buy and sell? You’ll want to do regular tax mappings for all products and services bought and sold. Fast access to detailed and summarized transaction data is crucial for audit defense.
- Does it provide simple and effective tax exemption management? The ability to quickly pull and send data related to customer exemptions is helpful for internal review and a must-have for outside audits.
- Does it provide nexus intelligence? Capabilities that enable you to monitor constantly changing economic nexus thresholds can help you identify potential audit exposures.
- Does it help me to automate tax returns? This enables you to streamline the filing process and easily access up-to-date and historical tax filing content.
Every company will have its own definition of what constitutes success in an external audit, whether it’s a zero assessment, identifying a source of error and correcting it or even finding that you’ve overpaid on some purchases or capital projects. Whatever your goals, the right tax technology can help you streamline the process and improve audit performance.
Please remember that the 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.