The total cost of sales tax audits includes the following: 1. Cost of time spent reviewing records and responding to auditors 2. Cost of professional assistance 3. Tax assessment 4. Penalties 5. Interest 6. Future year scrutiny Auditors are likely to begin their audits in the area of your client's business that is most exposed (and easiest to assess) and then will extrapolate their findings across a broad range of other areas. Once an auditor uncovers a liability at one company, he or she has access to the invoices sent and received and then can potentially widen his circle of audit assessments. The audit net continues to expand from that single company to its vendors and customers until the auditor runs out of time or energy and the coffers have filled back up. Sales tax is an easy source of revenues for any state government in need of a revenue infusion.

How much of your client's profit could be at risk in an assessment? While there are few sources of statistical information related to sales tax assessments, a review of recent tax cases shows the following assessment activity: The State of New York assessed one company $560,095.35 on sales of $19 million covering a four year period from March 2001 through May 2004. New Jersey charged a company $16,164.89 on sales from April 2001-June 2004. The Idaho state tax commission assessed $36,723 on sales made from January 2002 to December 2005, but by the time they were finished, penalties and interest added another $20,000 to that figure. Wisconsin assessed one company $20,371.20. These are just some of the recent assessments that made it to court. Numerous assessments are paid without dispute or are settled out of court.