State & Local Sales Tax Audit Assistance

Help businesses navigate state and local sales and use tax audits with control, accuracy, and minimal disruption while reducing exposure and resolving issues efficiently.

What Is a State & Local Sales Tax Audit

A state or local sales tax audit is a formal examination by a taxing authority to verify whether a business has properly collected, reported, and remitted sales and use tax. Audits typically review multiple years, transaction-level data, exemption handling, nexus determination, and internal tax processes. The objective of the state is to identify underreported tax, penalties, and interest. The objective of the business is to control scope, accuracy, and financial exposure.

Why Businesses Are Selected for Sales Tax Audits

Businesses are commonly selected due to one or more of the following:
  • Rapid revenue growth or significant fluctuations in reported sales
  • Nexus expansion due to remote sales, acquisitions, or new locations
  • Industry-specific audit initiatives by state agencies
  • Inconsistent exemption certificate management
  • Prior audit findings or unresolved compliance issues
  • Data matching discrepancies between filed returns and third-party information
Selection does not imply wrongdoing. It reflects risk profiling by tax authorities.

Common Sales Tax Audit Exposure Areas

Economic nexus, physical presence, marketplace activity, and affiliate relationships are frequent audit focal points. Misinterpretation of nexus thresholds often leads to retroactive exposure.Exemptions and Resale CertificatesIncomplete, expired, or invalid exemption certificates are a primary driver of audit assessments. Auditors generally disallow exemptions without proper documentation.Use Tax AccrualsUnreported use tax on taxable purchases is one of the most common findings, particularly for equipment, software, freight, and vendor miscoding.Taxability ErrorsIncorrect product or service taxability classifications across jurisdictions can create systemic undercollection issues.Data Integrity and ReportingInconsistent transaction data, system limitations, or mismatches between ERP, POS, and tax filings often expand audit scope and duration.

How Managed Sales Tax Audits Reduce Risk and Disruption

A managed audit approach shifts control back to the business. Rather than reacting to auditor requests, the audit is structured, documented, and executed through a defined process. Benefits include:
  • Reduced penalties and interest exposure where available
  • Controlled data presentation and sampling methodologies
  • Fewer open-ended information requests
  • Shorter audit timelines
  • Clear issue resolution and documentation
Managed audits are not avoidance strategies. They are structured compliance strategies.

How SumIt Credits Supports Clients

Pre-Audit Support
  • Audit notice review and scope clarification
  • Nexus and exposure assessment
  • Data preparation and validation
  • Exemption certificate remediation strategies
  • Audit readiness planning
During the Audit
  • Primary point of contact with the taxing authority
  • Managed information requests and responses
  • Sampling analysis and defense
  • Issue identification and negotiation support
  • Ongoing exposure tracking
Post-Audit Resolution
  • Assessment review and validation
  • Penalty and interest mitigation support
  • Payment planning or appeals coordination
  • Process improvement recommendations to prevent recurrence

Process Overview

  1. Audit notice intake and risk assessment
  2. Scope definition and data strategy
  3. Controlled data submission and analysis
  4. Issue resolution and negotiation
  5. Final assessment review and closeout
Sumit Credits - state local sales tax audit assistance

Top 10 Questions & Answers

  1. What triggers a state sales tax audit?Audits are commonly triggered by revenue growth, nexus expansion, industry initiatives, data mismatches, or prior audit findings.
  2. How long does a typical sales tax audit last?Sales tax audits often last several months and can extend longer depending on data quality, scope, and issue complexity.
  3. What documents are usually requested in a sales tax audit?Auditors typically request sales transaction data, exemption certificates, purchase records, tax returns, and supporting accounting documentation.
  4. How far back can states audit sales tax?Most states audit three to four years, though the period can be longer if returns were not filed or in cases of substantial underreporting.
  5. What is a managed sales tax audit?A managed audit is a structured audit process where the business, often with an advisor, controls data flow, analysis, and communication with the taxing authority.
  6. How does audit assistance reduce penalties?Proper documentation, accurate issue identification, and timely responses can support penalty abatement where permitted by statute or policy.
  7. What are the most common audit mistakes businesses make?Common mistakes include overproducing data, failing to validate auditor assumptions, and ignoring exemption remediation opportunities.
  8. How does nexus impact audit exposure?Incorrect nexus determinations can result in multi-year exposure across multiple jurisdictions for uncollected tax.
  9. Can past errors be corrected during an audit?In some cases, documentation remediation or voluntary corrections may reduce exposure, depending on state rules and audit posture.
  10. When should a business involve a third-party audit specialist?Businesses should involve specialists at audit notice, when exposure is material, or when internal resources lack audit-specific expertise.

Audit Readiness Checklist

  • Confirm nexus positions across all jurisdictions
  • Validate exemption certificate completeness
  • Review use tax accrual processes
  • Reconcile sales data to filed returns
  • Identify high-risk products and transactions

Executive summary

If your organization has received a sales tax audit notice or wants to proactively assess audit risk, Sum It Credits provides structured, audit-aware support designed for complex, multi-jurisdictional environments. Engage early to maintain control, clarity, and compliance throughout the audit lifecycle.