What to gather before a sales and use tax review
Sales and use tax reviews look in two directions. On sales, did you collect the right tax, or have proof of why you did not? On purchases, did you pay tax to vendors that should have charged it, or owe use tax that nobody accrued? The records that answer those questions are scattered across finance, sales operations and purchasing. This guide helps you collect them in one pass.
Know what the records must prove
A state tax authority will typically expect a seller to keep records of gross receipts, records of taxable purchases, support for any deductions, and the resale or exemption certificates it accepted. One state comptroller notes that sales without a valid certificate on file can be presumed taxable in an audit. Rules differ from state to state, so treat that as an example, not a universal rule. [VERIFY: record and retention requirements in each state where you operate]
A partner firm will tell you which jurisdictions to prioritize. Your job is to bring a clean set of source records.
Returns and filings
Start with what you already filed:
- Sales and use tax returns for each period and jurisdiction
- Payment confirmations
- Notices, assessments or letters from any tax authority
- Prior audit reports and any settlement papers
- Registration records showing where you hold permits
Put them in folders by jurisdiction. If a state appears in your sales data but not in your filings, mark it. That gap is often where a review begins. See the glossary entry on sales and use tax nexus for why presence in a state can create obligations. [VERIFY: how each state defines nexus for your activities]
Sales detail
Ask your billing or ERP administrator for a transaction-level export that includes:
- Invoice number, date and customer
- Ship-to address, not only bill-to
- Product or service description and any tax code assigned
- Amount charged, tax charged and tax exempt flag
- Credit memos and returns
Ship-to location drives much of the answer, so confirm that your export carries it.
Exemption and resale certificates
For each customer treated as exempt, gather the certificate. Check that it is signed, dated, names the right entity and matches the product sold. Then sort them into three piles: valid, incomplete and missing. Missing certificates are a priority because they are often fixable if the customer can still supply one. [VERIFY: how long after a sale each state allows a certificate to be obtained]
Purchase detail
Use tax shows up on the buying side. Prepare:
- The accounts payable ledger by vendor, with tax paid on each invoice
- Fixed asset additions with invoices
- Software, subscriptions and digital services purchased
- Purchases for which you gave a vendor an exemption certificate
- Your accrual records for self-assessed use tax
Fixed assets and software are the usual surprises. They are bought by different teams, often without tax review.
Describe how tax is set
Write a short note on how tax is determined in your systems. Who maintains tax codes? Is rate lookup automated? Who reviews new products or services before launch? If you use a tax engine, name it and describe how it maps to your catalog. A partner firm will use this to decide where errors could start.
Warning: Do not contact a tax authority about a possible shortfall on the strength of this checklist. Speak to qualified tax counsel first. [VERIFY: voluntary disclosure options and their rules in each state]
Checklist before you submit
- List the states where you sell, ship, hold inventory or have staff.
- Collect returns and notices by jurisdiction.
- Export sales detail with ship-to addresses.
- Sort exemption certificates into valid, incomplete and missing.
- Export purchase detail, assets and software.
- Write the tax-setting note.
- Name a finance contact and a sales operations contact.
Next steps
The service is described on Sales and use tax. Read Common sales and use tax errors for patterns reviewers look for. Then submit through Request a professional. Fairview connects you with a partner firm. The firm performs the review and advises on next steps under its own terms.
Sources
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