In the last year, Kallas has seen an unusual spike in sales tax audits by the State of Michigan. Although no one knows for sure how they pick their victims, we think that the state is now matching the 1099-K that the credit card processing companies are providing to the IRS. This is a new procedure for the State and unlike the IRS who will send a letter asking for an explanation if the amounts do not match, the State is just coming in and auditing.
A sales tax audit is not a simple thing.
In a sales tax audit, the auditor will want to access your POS system. He or she will want to see your check registers, bank statements and other sources of taxable and non-taxable income. They will want to interview you and ask questions about your procedures from ringing up customers to depositing to the bank. They will also look at complimentary giveaways, customer discounts and employee discounts to see if you are reporting those properly. If you do events or sell to charities or government employees, which is non-taxable, you need to have a copy of their tax exemption certificate.
If you do not have a cloud-based POS system which keeps a record forever, they will want to see historical hand-written, print-outs or computer records of your sales and all adjustments to sales going back 4 years.
It is not unusual for computers to crash and records may be destroyed. That is why it is important to have a back-up written or printed record of your sales activity over the last 4 years. If your POS system has crashed without a back-up, you can expect a very invasive and expensive investigation of your records and how you run your business.
Giving Kallas electronic access to your POS every month is one way to make sure your procedures will withstand an audit.
If you have any doubts as to how you are reporting your sales and keeping records, call your bookkeeper at Kallas and we will perform an analysis of your procedures for you.