Audit process questions

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. A date and time will then be agreed upon.

The audit may take place at the following locations:

your place of business.
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 relates to excise taxes you may pay on your excise tax returns, such as:

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

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

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

How can I prepare for an audit?

The auditor will explain the records required for the review. Gather these before your meeting.

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

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, general ledger, sales journal, general journal, cash receipts journals, and any other records used to record income and expenses.
Sales invoices.
Purchase invoices, such as accounts payable and receipts.
Depreciation schedule and purchase invoices for assets acquired during the audit period.
Reseller permits/resale certificates for any wholesale sales.
Supporting documentation for all deductions and exemptions.

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

Electronic records
The auditor will use your electronic records, when available. This improves the accuracy of the audit and reduces the time it takes to complete, minimizing the inconvenience to you.

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.

The auditor will discuss the options to select the most appropriate method.

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

What happens during an audit?

The auditor will take a tour and/or observe your operations to get a better understanding of your business activities and accounting records.

The auditor will review those 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 a mistake has been made, please contact the auditor promptly.

If you agree with the adjustments:

You have the option to prepay your assessment once the audit has been completed. Full payment will include the tax, any applicable penalties, and estimated interest. Since a full payment stops the accrual of interest, you would save money by making the payment early. Any questions you have about making a prepayment should be discussed with the auditor.

If you disagree with the adjustments:

You may request a meeting 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 Administrative Review and Hearings 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.