Sales and Use Tax Audits

State taxing agencies are responsible each quarter for collecting and monitoring sales tax revenues from thousands of accounts, some having 200 - 300 sub-outlets each. Considering the sheer number of returns, the complexities and variations of each state's tax system, and the number of sales tax filings by out-of-state corporations, the taxing agencies do a very effective job of collecting and distributing sales and use tax revenues. Despite their diligence, as much as 3% of local revenues are misallocated.

The chances for error grow as businesses are sold, consolidated, and relocated, or as marketing or warehousing practices change. Taxpayer confusion over new "use tax" regulations and reallocation of "points of sale" for e-commerce adds to potential for error. While state agencies rue these errors, it is simply impractical for them to identify and correct all such mistakes due to the time and expense involved.

To address these errors, HdL administers an ongoing, taxpayer-friendly system of monitoring client sales and use tax receipts to identify errors and recover lost revenues. These recoveries directly benefit our clients' general funds. Since incorporation, HdL has recovered a cumulative total of over $1 billion in misallocated sales and use taxes.

HdL looks for and corrects allocation errors including:

• Sales misreported as "use tax" transactions.
• "Point of Sale" revenues misreported to administrative offices or other locations.
• Misallocations occurring because sales from multiple retail outlets, order desks, or offices are credited to a single location.
• Misallocations due to jurisdiction miscoding.
• "Use tax" transactions exceeding $500,000 not allocated to the host agency.
• Construction-related sales listed as "installation" rather than "over-the-counter".
• Warehouses that function as a "point of sale" but not identified as such.
• Misallocations that occur due to zip code, boundary, or jurisdictional discrepancies.