Doing business

 

Why am I being audited?

The Department of Revenue (DOR) routinely audits businesses to determine whether state excise taxes were reported and paid correctly. Audits are a learn­ing opportunity for correct excise tax reporting.

 

When and where will the audit be performed?

An auditor will contact you to schedule an appoint­ment. It will be at a mutually agreed upon date and time.

 

The audit may be performed at:

• your business or home.
  
  
• one of the Department's local offices.
  
  
• your accountant's, attorney's, or other representative's office.

 

We are committed to working with you in a profes­sional and cooperative manner.

 

What will the auditor review?

The audit period is usually for the four preceding calendar years, plus the current year through the end of the last completed calendar quarter.

 

An audit of your business activities will cover sev­eral major areas, including:

1. Income verification of proper amounts, classifications, and documentation.
   
   
2. Deductions and exemptions verification of proper amounts, classifications, and documentation.
   
   
3. Purchases verification of retail sales or use tax paid on capital assets, supplies, or articles manufactured for your own use.

The above three categories relate to the major excise taxes you may pay on your tax returns such as:

• business and occupation tax
  
  
• retail sales tax
  
  
• use tax
  
  
• public utility tax

 

How can I prepare for an audit?

The auditor will describe the records that will be reviewed. You should gather them before meeting with the auditor.

The records requested usually include the following:

• Washington State excise tax returns and workpapers
  
  
• federal income tax returns for the business
  
  
• summary accounting records and source journals such as check registers, the general ledger, sales journal, general journal, cash receipts journals, and any other records you use to record income and expenses
  
  
• sales invoices
  
  
• purchase invoices (i.e., accounts payable, receipts)
  
  
• depreciation schedule and purchase invoices for assets acquired during the audit period
  
  
• resale certificates for any wholesale sales made
  
  
• supporting documentation for all deductions and exemptions

 

Although most audits can be completed with the above records, additional documents may be requested during the audit.

 

Electronic Records

The use of electronic records, when available, can greatly reduce the time required to complete the audit. You can provide electronic records on floppy disk, CD, or via e-mail.

 

Sampling

Sampling is frequently used to realize efficiencies for both the Department and taxpayer. This helps minimize costs associated with the audit, such as retrieving and examining documents.

 

If there are numerous records to review, document sampling is an option. The auditor will discuss the options available with you and together select the most appropriate method.

 

Confidentiality

All information you provide will be maintained in strict confidence and is not available to the public. However, you should be aware that the Department has information-sharing agreements with the Internal Revenue Service and other state agencies.

 

What happens during an audit?

The auditor may take a plant tour and/or observe your business operations. This will help their under­standing of your business activities and accounting records.

 

The auditor will review your accounting records and provide you with valuable information and instruc­tions for future use.

 

What happens after the audit?

You will be notified of the audit findings. The auditor will explain any adjustment to you or your representative before finalizing the audit. If you have information we have not considered or you be­lieve we made a mistake, please contact the auditor promptly.

 

If you agree with the adjustments:

• The auditor will ask if you want to make an audit prepayment for additional taxes owed. Full payment will include the tax, assessment penalty, and esti­mated interest. You would save money by making the payment since interest accrues until the taxes are paid in full.
  
  
• The audit will be processed and the assessment package will be mailed to you. This will take ap­proximately four to six weeks.
  
  
• If you have not prepaid the assessment, you have 30 days from the date it was mailed to pay in full. If you prepaid the assessment, a balance due may still exist because of the estimated interest calculation. Additional interest and late payment penalties may be added if payment is not received by the due date. Please contact the audit manager if payment cannot be made promptly.
  
  
• If you have overpaid your taxes, you will receive a credit notice to apply against future returns. How­ever, you may request a refund check.

 

If you disagree with the adjustments:

• You may request a conference with the auditor's manager and review disputed issues.
  
  
• If agreement cannot be reached, you have 30 days from the date the audit report is mailed to appeal to the Department's Appeals Division.
  
  
• If you file an appeal prior to the assessment's due date, you should pay the unprotested amounts. Pay­ment is not required for the protested amounts and will remain due pending the appeal. However, inter­est continues to accrue until taxes are paid in full.
  
  
• If you file an appeal more than 30 days after the audit report is mailed, you must pay the total amount due and petition for refund.

 

Audit Process

• Contacted by the auditor to schedule an appointment
  
  
• Information gathered
  
  
• Audit performed
  
  
• Audit findings discussed
  
  
• Audit agreed to OR manager's conference held
  
  
• Audit finalized
  
  
• Any adjustment paid OR appeal filed

 

 

NOTE:  This is general information.  If you need more information about the audit process, please contact your local office.

 

Audit Process Brochure (pdf)