Taxpayers who purchase companies are sometimes audited during periods where the acquired company was not part of the current entity. If the purchaser did not have the seller secure a certificate of no tax due, the purchaser is liable for sales or use tax assessed during the audit period, without regard to who owned the entity during the audit period.
Some attorneys build potential sales and use tax deficiencies into escrow. That works if enough money is allocated and the audit is over before the funds revert back to the seller. In other instances, a sale occurs and there is no set aside for sales and use tax deficiencies. It is disheartening to tell a taxpayer that without the paperwork for the audit period, the auditor is entitled to estimate a deficiency. Estimates typically do not favor the taxpayer.
It is the responsibility of the taxpayer to retain the documentation necessary to complete an audit. Documents necessary to complete an audit include, but are not limited to, the general ledger, chart of account, sales tax workpapers, purchase invoices, sales invoices, federal income tax returns, bank statements, etc. The best way to forestall this issue to avoid the situation entirely, i.e. secure a certificate of no tax due.