Tips from Auditors for Taxpayers Under State and Local Sales and Use Tax Audits

Published: April 24th, 2019

Here are some sales and use tax audit tips from the Colorado Tax Audit Coalition (CTAC):

1. Maintain clear records
   • Document when, where, and at what rate taxes were charged.
   • Keep the supporting data used to file each return.
2. Be transparent about audit periods
   • Review the audit period with the auditor.
   • Explain any outliers or unusual transactions openly.
3. Balance documentation
   • Avoid overloading auditors with unnecessary paperwork.
   • Provide sufficient records to move the audit forward efficiently.
4. Maintain professionalism
5. Track deductions carefully
   • Document promotional giveaways, charitable donations, fixed-asset purchases, and withdrawn inventory separately.
6. Support exemptions
   • Keep exemption certificates current.
   • Retain documentation for all non-taxed deductions.
7. Watch for red flags
   • High volumes of exempt sales or frequent refunds.
   • Continuous filing errors or late filings.
   • Whistleblower complaints or audits of your customers.
   • Failing to correct errors from prior audits.

For more information, visit www.salestaxcolorado.com.