Sales Tax (SBE)
The California Department of Tax and Fee Administration (formerly the State Board of Equalization - SBE) is in charge of administering sales taxes in California. Sales tax audits are uniquely different from income tax audits. They usually involve “sampling” techniques to search for supposed errors on your returns. “Sampling” is not a true science and it is not the type of accounting that most of us are used to because it involves estimates by the auditor. “Sampling” involves rough estimations of total sales and additional estimations to arrive at a “percentage of error” in your sales tax reporting. Short periods of time are reviewed by the auditor. After deciding on a deficiency in your tax reporting, numbers are extrapolated out over longer periods of time, generally three years.
If you have taxable and non-taxable sales, this “sampling” can be very problematic because a simple error by the auditor during the sampling period will be multiplied many times over as the auditor extrapolates out the proposed sales tax over several years. Additional issues typically arise in these audits because sales taxes can be calculated in a number of different ways. The same business may be subject to half a dozen or more different potential ways to calculate the tax depending on its method of sales. Professional help is often necessary in order to avoid being re-categorized by the auditor into a different category, for the sole purpose of increasing your sales tax.
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