When Cleanliness is Not Next to Godliness: Keep Your Records!

Posted by Stephanie Thomas, CPA on Dec 14, 2017 9:05:00 AM

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For those business owners who have never been through a sales tax audit, the idea that the state can audit your records for several years can come as a shock.  The statute of limitations for a sales tax audit varies from jurisdiction to jurisdiction.  In Texas, the statute of limitations is four years.  That means that an audit generated in 2018 can cover periods in 2014.

Unfortunately, some companies don't retain records that long.  Maybe the owner decided to clean the warehouse or there was a computer system conversion during which the old records were lost. Lack of records will never forestall an audit.

What happens if a company does not retain their records? Taxing authorities have various options to address this issue.  The most dreaded option is to estimate your sales tax deficiency.  Estimates are rarely a good thing for the business owner. The most problematic issue with estimates is that if you are unhappy with the outcome, the lack of records makes it more difficult to prove that the estimate is inaccurate.  It is the duty of the business owner to retain the records required to perform an accurate audit.

Instead of discarding or destroying your records, think of other options.  Scanning your files and retaining electronic copies will clear your file cabinets while retaining your records in case you are ever audited.  Uploading files to the cloud or retaining backup copies of your records that can be easily retained are other options.  

Keep in mind: records are a good thing if and when the tax man comes knocking on your door.    

For more information about Sales Tax Audits, read "10 Costly Mistakes of a Sales Tax Audit: How to Survive Your Review".

Topics: Sales Tax, Sales Tax Audit

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