Sales & Use Tax Foundations (part 11) – Audits and Assessments

Part XI:  Basic Questions and Answers about State Sales and Use Tax:  Audits and Assessments

In our last blog, Part X: Basic Questions and Answers about State Sales and Use Tax:  Civil and Criminal Penalties, we focused on the tenth of our foundational sales and use tax topics — civil and criminal penalties for sales tax noncompliance, aimed primarily at the nontax specialist, who is often challenged by the complexities of sales and use taxation. In this blog, we ask and answer a basic question about the topic — what are the rules around state sales tax audits and assessments?

Sales Tax Audits and Assessments — In General

Question 1:  What are the rules around state sales tax audits and assessments of tax?

All state revenue departments may examine the books, papers, records, and equipment of any seller of tangible personal property or of any person liable for use tax and may investigate the character of the business to verify the accuracy of the tax returns or, if no returns are filed, to determine the proper tax amount due.  Most states have a three-year statute of limitations for those filing returns, which can be extended to six for liability understatements that exceed 25 percent. If a taxpayer fails to file a return, the statute of limitations in most states is never tolled.  However, several states provide for a longer period.  State laws must be researched.

Sales and Use Audits and Assessments—State-Specific Rules

Chart:  Statute of Limitations on Assessments

Sales and Use Taxes > Administration  >  Statutes of Limitations  >  Assessments
Here are the assessment periods. Generally, there is no limitation period where either no return or a fraudulent return was filed.
Jurisdiction Assessments Comment Citation
Alabama 3 years from later of return due date or return filing date. If base understated by more than 25%, 6 years from later of return due date or return filing date. Ala. Code §40-2A-7
Arizona 4 years from later of return due date or return filing date. If receipts understated by more than 25%, 6 years from return filing date. Ariz. Rev. Stat. §42-1104
Arkansas 3 years from later of return due date or return filing date. If receipts understated by more than 25%, six years from the date the return was filed. We recommend you reference cited authority for more information. Ark. Code Ann. §26-18-306
California 3 years from later of the end of the calendar month following the quarterly period for which the assessment relates, or the return filing date. 8 years from the end of the calendar month following the quarterly period if no return was filed. We recommend you reference cited authority for more information. Cal. Rev. & Tax. Code §6487(a)
Colorado 3 years from later of tax due date or return filing date. Colo. Rev. Stat. §39-26-125
Colo. Rev. Stat. §39-21-107
Connecticut 3 years from the later the end of the calendar month following the tax period, or the date the return was filed. Conn. Gen. Stat. §12-415(f)
District of Columbia 3 years from return filing date. 6 years from return filing date if tax understated by more than 25%. D.C. Code Ann. §47-4301
Florida 3 years from later of return due date, tax due date, or return filing date, or any time a right to a refund or credit is available to the taxpayer. Fla. Stat. §95.091(3)
Georgia 3 years from later of return due date or return filing date. We recommend you reference cited authority for more information. Ga. Code Ann. §48-2-49
Hawaii 3 years from later of annual return due date or filing date. Haw. Rev. Stat. §237-40
Idaho 3 years from later of return due date or return filing date. 7 years from return due date if no return was filed. We recommend you reference cited authority for more information. Idaho Code §63-3633
Illinois 3 years from the month or period in which the taxable gross receipts were received (assessments issued on January 1 or July 1). Ill. Admin. Code tit. 86, §130.815
Indiana 3 years from later of the return filing date or the end of the calendar year containing the period for which the return was filed. Ind. Code §6-8.1-5-2
Iowa 3 years from return filing date. Iowa Code §423.37
Kansas 3 years from return filing date. In the case of a false or fraudulent return, 2 years from the date fraud was discovered. We recommend you reference cited authority for more information. Kan. Stat. Ann. §79-3609(b)
Kan. Admin. Regs. §92-19-63
Kentucky 4 years from later of return due date or return filing date. We recommend you reference cited authority for more information. Ky. Rev. Stat. Ann. §139.620(1)
Louisiana 3 years from the end of the calendar year in which the tax payment was due. La. Const. Art. VII, §16
La. Rev. Stat. Ann. §47:1580
Maine 3 years from later of return due date or return filing date. If tax understated by 50% or more, 6 years from return filing date. Me. Rev. Stat. Ann. tit. 36, §141
Maryland 4 years from tax due date. No limitations period if proof of fraud or gross negligence. Md. Code Ann. §13-1102
We recommend you reference cited authority for more information.  
Massachusetts 3 years from later of return due date or return filing date. Mass. Gen. Laws ch. 62C, §26
Michigan 4 years from later of return due date or return filing date. For cases involving fraud, 2 years from the date fraud was discovered. Mich. Comp. Laws §205.27a(2)
We recommend you reference cited authority for more information.  
Minnesota 3.5 years from later of return due date or return filing date. If taxes underreported by more than 25%, 6.5 years from later of return due date or return filing date. Minn. Stat. §289A.38
We recommend you reference cited authority for more information.  
Mississippi 3 years from return filing date. Miss. Code. Ann. §27-65-42
Missouri 3 years from later of return due date or return filing date. Mo. Rev. Stat. §144.220
Nebraska 3 years from later of date the return was filed or the last day of the calendar month following the tax period. For cases where a return has not been filed, a false or fraudulent return has been filed with the intent to evade the tax, or an amount has been omitted from a return that is in excess of 25% of the amount of tax stated, 6 years after the last day of the calendar month following the period in which the amount is proposed to be determined. Neb. Rev. Stat. §77-2709
We recommend you reference cited authority for more information.  
Nevada 3 years from later of return filing date or the last day of the calendar month following the tax period. 8 years from the last day of the month following the tax period if no return is filed. Nev. Rev. Stat. §360.355
New Jersey 4 years from return filing date. N.J. Stat. Ann. §54:32B-27(b)
N.J. Stat. Ann. §54:49-6
New Mexico 3 years from the end of the calendar year in which the tax payment was due. If taxes underreported by more than 25%, 6 years from the end of the calendar year in which the tax payment was due. 7 years from the end of the calendar year in which the tax payment was due if no return was filed. 10 years from the end of the calendar year in which the tax payment was due if fraudulent return was filed. We recommend you reference cited authority for more information. N.M. Stat. Ann. §7-1-18
New York 3 years from later of return due date or return filing date. N.Y. Tax Law, §1147(b)
North Carolina 3 years from later or return due date or return filing date. N.C. Gen. Stat. §105-241.1(e)
North Dakota 3 years from later of return due date or return filing date. If tax understated by 25% or more, 6 years from later of return due date or return filing date. 6 years from return due date if no return was filed. N.D. Cent. Code §57-39.2-15
We recommend you reference cited authority for more information.  
Ohio 4 years from later of return due date or return filing date. Statute of limitations period does not apply if the taxpayer has not filed a return, if the commissioner has information that the taxpayer has collected taxes but failed to remit to the state, or the taxpayer and commissioner have waived the limitations period in writing. Ohio Rev. Code Ann. §5739.16(A)
Ohio Rev. Code Ann. §5703.58
We recommend you reference cited authority for more information.
Oklahoma 3 years from later of return due date or return filing date. We recommend you reference cited authority for more information. Okla. Stat. tit. 68, §223
Pennsylvania 3 years from later of return filing date or the end of the year in which the liability arose. 72 P.S. §7258
Rhode Island 3 years from later of return filing date or the 15th day of the month following the month in which the return was due. R.I. Gen. Laws §44-19-13
South Carolina 3 years from later of date the return was filed or due to be filed. 3 year statute of limitations period does not apply (i) if there is a fraudulent intent to evade taxes; (ii) a taxpayer has failed to file a return, (iii) there has been an understatement of tax by 20% or more; (iv) taxpayer has given consent in writing to waive limitation; and (v) tax imposed is a use tax and assessment is based on information obtained from state, local, regional or national tax administration organization. S.C. Code Ann. §12-54-85
We recommend you reference cited authority for more information.  
South Dakota 3 years from return filing date. S.D. Codified Laws §10-59-16
Tennessee 3 years from the end of the calendar year in which the return was filed. Tenn. Code. Ann. §67-1-1501(b)
Texas 4 years from tax due date. No limitation period if tax understated by 25% or more. We recommend you reference cited authority for more information. 34 Tex. Admin. Code §3.339(a)
Utah 3 years from return filing date. Utah Code Ann. §59-12-110(6)
Vermont 3 years from later of return due date or return filing date. If tax understated by 20% or more, 6 years from return filing date. Vt. Stat. Ann. tit. 32, §9815(b)
We recommend you reference cited authority for more information.  
Virginia 3 years from tax due date. 6 years from tax due date if no return was filed or fraudulent return was filed. Va. Code Ann. §58.1-634
Washington 4 years from the close of the tax year in which the liability arose. Statute of limitations period does not apply to a taxpayer that has not registered, that has committed fraud or misrepresentation, or has executed a written waiver of the limitation. Wash. Rev. Code §82.32.050(4)
We recommend you reference cited authority for more information.  
West Virginia 3 years from later of return due date or return filing date. We recommend you reference cited authority for more information. W. Va. Code §11-10-15
Wisconsin Generally, 4 years from return filing date. Period may be extended if taxpayer consents in writing. Wis. Stat. §77.59(3)
Wis. Stat. §77.59(3m)
We recommend you reference cited authority for more information.
Wyoming 3 years from the date of delinquency. Wyo. Stat. Ann. §39-15-110(b)

 

Chart Two:  Managed Audit Programs

Sales and Use Taxes >  Administration  >  Managed Audit Programs
Managed audits allow a taxpayer (or qualified third party) to perform an audit under guidelines set by the state.
Jurisdiction M.A.P Comment Citation
Alabama No
Arizona Yes Managed audit applications may be submitted beginning in 2006. Ariz. Rev. Stat. §42-2302
Arkansas No
California Yes Pilot program terminated 1/1/03. New program in effect beginning 1/1/04. We recommend you reference cited authority for more information. Cal. Rev. & Tax. Code §7076
Colorado Yes Colorado Department of Revenue Website
Connecticut Yes Informational Publication 2001(8), Connecticut Department of Revenue Services, May 2001
District of Columbia No
Florida Yes State offers Certified Audit Program. Certified audits must be performed by qualified third parties. We recommend you reference cited authority for more information. Fla. Stat. §213.285
Georgia Yes Managed audit agreement is unique for each taxpayer. We recommend you reference cited authority for more information. Audit Administrator, Georgia Department of Revenue
Hawaii No E-mail, Hawaii Department of Taxation
Idaho Yes Taxpayers seeking information on managed audits should contact Idaho State Tax Commission. We recommend you reference cited authority for more information. Unofficial department guidance
Illinois No
Indiana No
Iowa No
Kansas Yes We recommend you reference cited authority for more information. Kan. Stat. Ann. §79-3661
Kentucky No We recommend you reference cited authority for more information.
Louisiana No
Maine No State has no formal provisions but Maine Revenue Services may make informal arrangements to permit the taxpayer to perform some audit procedures.
Maryland Yes E-mail, Maryland Comptroller’s Office, January 12, 2006
Revenews
Massachusetts No
Michigan Yes Taxpayers seeking information on managed audits should contact Department of Treasury Audit Discovery Division. E-mail, Michigan Department of Treasury, November 2005
Minnesota No Field auditors may allow taxpayers to examine their own records during the course of a field audit if the auditor believes the taxpayer understands the issue to be examined. E-mail, Minnesota Department of Revenue
We recommend you reference cited authority for more information.  
Mississippi No
Missouri No
Nebraska No Managed Audit Survey, Nebraska Department of Revenue, December 20, 2016
Nevada No
New Jersey No New Jersey utilizes an “effective use tax rate program.”
We recommend you reference cited authority for more information.
New Mexico Yes N.M. Stat. Ann. §7-1-11.1
New York No
North Carolina Yes Generally limited to businesses that do not make a large number of retail sales. We recommend you reference cited authority for more information. Unofficial department guidance
North Dakota No E-mail, North Dakota Office of State Tax Commissioner
Ohio Yes Managed Audits/Sales & Use Tax, Ohio Department of Taxation, April 1, 2001
Oklahoma No We recommend you reference cited authority for more information.
Pennsylvania Yes Pennsylvania Tax Update No. 115
PSales and Use Tax Bulletin No. 2013-01
Rhode Island Yes R.I. Gen. Laws §44-19-43
South Carolina No E-mail, South Carolina Department of Revenue, October 1, 2009
South Dakota No
Tennessee No
Texas Yes Tex. Tax Code Ann. §151.0231
Utah Yes Specific industries are selected for the self-review program. E-mail, Utah State Tax Commission, December 6, 2005
Vermont No
Virginia No
Washington Yes We recommend you reference cited authority for more information. Managed Audit Program, Washington Department of Revenue, February 2014
West Virginia No We recommend you reference cited authority for more information. E-mail, West Virginia State Tax Department, December 20, 2005
Wisconsin Yes Available for sales and use tax. E-mail, Wisconsin Department of Revenue Audit Technical Services
We recommend you reference cited authority for more information.  
Wyoming No
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AUTHOR

Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email: jerry.nestor@wolterskluwer.com

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