Discovering that your business has over or underreported sales tax can be a nightmare. In the past, self-auditing was an impossible task. Today, there are automated tools that make this process simple, fast, and effective. There’s no reason not to regularly self-audit.
Self-auditing allows you to self-report any previous sales tax mistakes, reduce your chance of being audited, and reduce or eliminate penalties and fines for under or over-sales tax payments.
Reporting Errors and Audits
By law, a business is not allowed to keep any income that comes from filing errors. An Application for Abatement/Amended Return or similar form must be filed in order to report any decrease or increase in tax in most states. In the case of underpaying sales tax, full payment should be made with the filing of the amended return.
If you fail to self-report sales tax errors you could be audited and worse off than if you’d taken the time to self-report. Auditors will often audit only a section of your books and will assume the error percentage is the same throughout. If the audited sample has an error average of 45% you will be penalized at that percentage, even if that section was the only section with errors. Your company can often benefit from being honest and forthcoming with errors, especially those that are easily corrected.
Self-auditing regularly with sales tax software can also help your company find consistent errors in returns. By self-auditing regularly, you can eliminate errors in the future as well as in the past.
How to Request An Overpayment Refund
In some instances, refunds or credits can be given in the event of overpaid sales tax. The exact procedure and forms required vary by state and should be assessed on an individual basis. In most cases, your company will have to explain the claim and document the credit.
How To Resolve Underpayment Errors
While each state is different, in most states, to file an amended return you will need to provide an amended return form, a cover letter explaining the changes, and any documentation required to track the underpayment.
Steps To Correct Sales Tax Errors
The more sales tax jurisdictions your company pays in, the more common underpaying or overpaying errors tend to be. Here are a few actions that can help eliminate common errors:
● Check for sales tax errors before filing: An ounce of prevention is worth a pound of cure. Conducting self-audits for every filing period can help eliminate sales tax errors before they occur. Not only can self-audits save you money in the long run, but it can also help your company reduce errors in the future.
● Keep up with changing sales tax laws: Sales tax laws are constantly changing. Sales Tax DataLINK can check jurisdiction accuracy for past returns and make sure your business charges the right rate at the right time.
● Always be prepared for an audit: Having the correct documentation, certifications, and up-to-date software can make the process go more smoothly and reduce audit compliance costs.
In the past, retroactively correcting payment mistakes was time-consuming and costly. With modern sales tax technology, it can now be done in seconds. As a business owner, you need to ensure that your company is doing all that it can to be as compliant and correct as possible every step of the way.
If you are unsure about certain sales tax rules, don’t be afraid to ask for assistance. Contact a tax expert with questions and invest in reliable and accurate sales tax software. If you are still uncomfortable filing yourself, or keep finding errors, you can also outsource the work and have more time to focus on your business.