How to Prepare Your Dealership for a Sales Tax Audit BY PHILIP CRAFT AND JAIME REICHARDT CITRIN COOPERMAN After a brief reprieve due to the pandemic, state and local tax audits are back in full force, with automotive dealerships being a top target. While nobody enjoys getting the dreaded letter from a state revenue department, there are things dealerships can do to prepare and bolster their documentation, tax reporting, and remittance procedures for state tax auditors should they come knocking. The following are four key audit areas automotive dealership leaders should focus on to improve their tax and financial documentation: 1. Sales and Gross Receipts While most dealerships file sales tax returns with financial information derived from their dealer financial statements, state tax auditors will often commence the audit by attempting to reconcile or point out inconsistencies between information reported on your quarterly returns with figures reported on your state income tax returns. While there may be several legitimate reasons for differences between the figures, an auditor will likely require you to provide a reconciliation explaining any differences. It is worth looking at your dealership’s financial statement mapping of sales to make sure it includes all sale accounts that would otherwise be grouped for tax purposes. 2. Fixed Assets You should keep all of your fixed asset invoices to prove that sales tax was paid and capitalized to the asset. In the event the vendor does not charge you sales tax and the item at issue is taxable, you should be accruing applicable use tax and paying it with your next quarterly return. Auditors will also target repairs and maintenance accounts. You should have a copy of your capitalization policy and be prepared to explain how items are deemed to be repairs versus capitalization. 20 NEW JERSEY auto retailer
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