Tax Audit FAQs
The Department of Revenue (Department) uses systematic methods and electronic data to evaluate and determine those taxpayers who are at potential risk for underreporting and/or underpaying sales, use, corporate, and/or withholding taxes.
A Department auditor contacts businesses either by phone and/or by letter. Once initial contact has been established, discussions will follow regarding audit periods, accounting records, sampling the accounting records, and where the audit will be conducted. These discussions may be by phone or during a face-to-face meeting.
The Field Compliance Bureau recognizes that many companies maintain their accounting records in electronic format. If any of the records can be provided electronically on compact disk or similar electronic media, the audit time at your business location can be substantially reduced. Furthermore, providing records in electronic format also reduces the risks associated with sampling and increases the accuracy of the audit.
It is not necessary for a tax professional or attorney to be present during an audit. In order for the auditor to discuss the audit with a third party, however, the Department of Revenue requires a signed power of attorney form.
The Code of State Regulations is available for viewing at www.sos.mo.gov.
The length of time an auditor will be at your business depends on various factors, including, but not limited to, the size of the business, the industry type, and the condition and complexity of the accounting records.
On average, an auditor spends one week examining records for a sales/use tax audit of a medium-sized company. After examining the records, the auditor will allow you time to gather additional information, if necessary. Follow-up meetings will be scheduled to discuss the overall progress and preliminary conclusions of the audit.
Under most circumstances, an auditor spends one day examining records for a corporate tax audit. If a large corporation or multiple corporations are audited, the audit time may be extended.
Department of Revenue audits are normally conducted at your business site, although other options may be available. An audit may be conducted off-site using electronic data provided by you, the taxpayer, or at the location of a third party, such as your tax professional's office.
Missouri sales and use tax laws Section 144.320, RSMo indicate that records should be kept for at least three years. The Department of Revenue recommends that records be retained for five years or as long as necessary to prove that a liability does not exist for periods under audit.
Corporate tax records should be retained in accordance with the same guidance provided above.
Sales tax exemptions are provided by state law, primarily in Chapter 144 of the Revised Statutes of the State of Missouri, for a variety of items including, but not limited to: component parts, machinery used in the manufacture of products sold at retail, export sales, and resale.
An exemption certificate retained by the seller must be updated every five years in accordance with the Missouri Code of State Regulations 12 CSR 107.100 - Use of and Reliance on Exemption Certificates. When an updated exemption certificate is received from a customer, the Department recommends that old exemption certificates be retained. A taxpayer may need the old exemption certificate as audit support for a non-taxed transaction.
Audit sampling generally benefits both the taxpayer and the Department of Revenue by reducing the time necessary to complete audit fieldwork and reducing the taxpayer's time and effort in retrieving documents for audit purposes.
Some factors that will affect the sampling methodology are: volume of invoices, industry type, size of company, availability of and access to records and cyclical periods for sales or purchases. One of the keys to selecting a representative sample is communication between the auditor and taxpayer.
A sales tax auditor will examine your federal income tax return to reconcile the gross sales between the federal return, the sales tax return, and the sales recorded in your accounting records. The depreciation schedule is also examined to determine if there were sales and purchases of fixed assets during the audit period.
You should first discuss audit related concerns and/or questions with your assigned auditor. If questions and/or concerns remain, you may contact your assigned auditor's supervisor or manager. Phone numbers and e-mail addresses are listed on our contact information page. You may also ask your assigned auditor for this information.
If you are in agreement with the determined sales/use or corporate tax liability and desire to pay the agreed-upon amount, make a check payable to the Missouri Department of Revenue and mail the check to the address indicated on your audit related correspondence. Depending on the type and amount of your check payment, your payment may be converted to an electronic image for deposit purposes. You also have the option to pay the audit with an electronic funds transfer. Contact your auditor for details.
If you agree with the determined sales/use tax audit liability, but are unable to pay, you may request an installment agreement. However, such an agreement is administered by the Taxation Division, Collections and Tax Assistance. An audit associated with an installment agreement will need to be assessed prior to Collections and Tax Assistance, administering the agreement. Once the assessment notice is issued, you should contact the Taxation Division, Collections and Tax Assistance, via the following website or call 573-751-7200.
The Department of Revenue typically does not offer installment agreements for corporate tax liabilities.
If you do not agree with the determined sales/use or corporate tax liability, you may choose to not pay the audit or pay the audit under protest. If you choose not to pay, assessment notices will be mailed to your business address. You will be provided 60 days to pay or appeal the assessment. The 60-day time frame is initiated with the date of the assessment notice.
If you choose to pay the audit under protest, the interest will stop accruing on the date of your payment. If the Administrative Hearing Commission or a court of law rules in your favor, you will receive a refund of the amount paid plus any interest earned. Paying the liability under protest has the advantage of stopping the accrual of interest if a decision favorable to the state is determined.
Interest on taxes due is computed from the date the tax is due until the postmark date of the tax payment. Interest shall be allowed and paid on any refund or overpayment at the rate determined by Section 32.068 RSMo. only if the refund is not issued within one hundred twenty days from the date the taxpayer files for a credit or refund and provides accurate and complete documentation to support such claim pursuant to Section 32.069 RSMo. The interest rates, which apply to both taxes due and refunds of sales and use tax and corporate and franchise tax can be found on the Statutory Interest Rate page.
You may apply for a refund on sales and use taxes for up to three years after the date of the overpayment. The date of the overpayment is the due date of the original return or the date paid whichever is later. The postmark date determines the date of payment. After a corporate income tax audit is completed, a claim for credit or refund of an overpayment shall be filed by the taxpayer within three years from the time the return was filed or two years from the time the tax was paid, whichever of such period expires later; or if no return was filed by the taxpayer, within two years from the time the tax was paid. See Section 143.801 RSMo.
Additional information related to refunds can be found in the Business Tax Refund FAQ.
If you still have questions, check out other Business Tax FAQs.
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