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SALT-ED Q&A: My vendor is being audited and I'm being asked for information. What should I do?

SALT-ED Q&A: My vendor is being audited and I'm being asked for information. What should I do?

Jan 24, 2017

Q: My vendor is being audited, and I’m being asked for information. What should I do?

A: Before you respond to your vendor, make sure you have all the information. What transactions are being reviewed (invoice dates, invoice numbers, entire invoice, or specific line items)?

Now, review the information you have on those same transactions:

- Did you issue a purchase order? If you did, did the purchase order state the purchase was taxable or exempt?
- Did you issue an exemption certificate to the vendor? Was it properly completed?
- Was the item taxable? If it was taxable, did you accrue use tax on the purchase if the vendor did not charge sales tax?
- Did you add tax to your payment? We do not recommend this approach because some vendors may never reclassify the overpayment as tax, so it remains as a credit balance on your account. If the vendor does not remit the tax, then you could still have liability if you were audited.
- Is the transaction location accurate? Some vendors may not distinguish between ship-to and bill-to locations, so verify the transaction occurred at the location listed.
- Did the transaction occur in a period already audited by the Department of Revenue? If the period was audited, the transaction might have already been taxed, depending on the sampling method.
- Were you charged sales tax by the vendor? Some states allow vendors to keep sales tax collected in error. If you paid tax already, do not provide an exemption certificate unless you are going to receive the tax refund.

If the item is clearly exempt, then it would be okay to provide another certificate. If the transaction involves a gray issue, then your issuance of a certificate at this time may trigger an audit of you if the state disagrees with your exemption claim.

Technically, the vendor can seek recovery of any sales tax from you based on the state’s rules. Some vendors will absorb the tax to maintain customer goodwill if the error was theirs. If you receive an invoice for back taxes from a vendor, always verify that you have not already paid the tax directly to the state. The payment of tax by you as the purchaser eliminates the liability for the seller. Generally, we see good cooperation between vendors and customers. You never know when the shoe will be on the other foot and you may need their help with a sales tax issue.

Author(s)

Daryl Ohland
Daryl L. Ohland, CPA, CIRM, MST
Director
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