Not as well known as their federal counterparts, the IRS Audits, your state tax authorities can also audit your returns, creating their own sense of risk to you and your business. Sometimes the IRS and State will find the same discrepancy, and both organizations will audit you simultaneously, but more commonly they look at different things. The Federal Government largely relies on income taxes, while your state government may have a myriad of other things that they tax. If you move to a state like Florida without an Income Tax, your state will never audit your income, but may review your sales tax or other records.
How does my State Tax Audit Work?
Unfortunately, that’s too broad of a question to answer. Each state’s revenue departments are setup differently, and the rules vary. However, the process is going to be similar to the IRS process, where they will request records that we supply. State revenue departments are often a little less structured than the IRS, and the field agents often have more flexibility. They also are likely to be more sympathetic to local conditions that may cause problems. The most common issue will be your state’s equivalent of the IRS CP2000 Notice, but a variety of issues and notices can pop up. However, the situation remains the same, you want to comply with your state audits, while giving them no additional information than what they request to avoid starting a fishing expedition.
What other sorts of state tax audits exist?
The most common are going to be state income taxes, which are similar to IRS audits, or Sales Tax Audits. Those are the main sources of revenue at the state level, and the primary sources that require your records to verify. For most businesses, your other taxes are more straightforward. Property taxes may have an appraisal and appeal process, but never have an audit process as the information is calculated by the state, county, or city office. If you have a more obscure audit, like a document stamp or liquor stamp tax, you’ll need a local expert in your state’s audit procedures.
We Represent Our Clients in State Audits
We represent our clients in audits regarding state income and state sales taxes. The most common challenges are filing discrepancies, electronic record disputes, and the occasional domicile challenge. As people move to lower tax states, the state revenue departments have gotten aggressive in challenging domicile moves. Keeping meticulous records regarding your move will help protect you. If you have not created strong records, we can work with you, your bank statements, and your other documents to establish your domicile.