Short answer: Sales tax audit representation means a qualified representative deals with the CDTFA for your business during a California sales and use tax audit. With a signed CDTFA-392 authorization on file, they communicate with the auditor, organize your records, review the auditor's tests and proposed findings, and handle the disagreement and appeal steps if you dispute the result.
This guide covers what a representative actually does and when to bring one in. For a step-by-step look at the audit itself, read what to expect in a CDTFA sales tax audit. To work with us, see our audit representation services or CDTFA sales tax audit help. Tax Resolution Plus is a private firm and is not affiliated with the CDTFA or any government agency.
What does a sales tax audit representative do?
A sales tax audit representative acts as your business's point of contact with the CDTFA auditor from the first call through the final report. Their job is to make sure the auditor sees complete, organized records and that every test and adjustment is checked before you agree to it. Here's what that usually includes.
- Communication with the auditor. They take the calls, schedule appointments and answer the auditor's questions about how your business operates and keeps records.
- Record organization. They gather your sales, purchase and resale records for the audit period and reconcile them to the returns you filed before the auditor sees them.
- Review of tests and sampling. The CDTFA may review every transaction or use a sample, often statistical, and project the results across the audit period. A representative checks whether the sample period and the projection fit your business. (CDTFA Publication 76)
- Review of proposed adjustments. They compare each proposed change against your records and gather documents that support your position, such as resale certificates for sales you reported as sales for resale.
- The exit conference. They attend the meeting where the auditor explains proposed changes and go through the audit working papers with you.
- Disagreement and appeal steps. If you dispute the findings, they prepare your explanation for the audit supervisor and, if needed, a petition for redetermination.
When should you get representation in a CDTFA audit?
The best time is at the first contact, before the first meeting with the auditor. CDTFA Publication 76 says that if you want the audit handled by an authorized representative, you should tell the auditor during the initial contact so the auditor can arrange appointments with your representative. (CDTFA Publication 76)
There are other points where representation can help:
- When the auditor calls or writes. The initial contact is usually by phone. The auditor explains the audit period, usually three years, and which records to have ready.
- Before you sign a waiver. If the start is delayed significantly, the auditor may ask you to sign a Waiver of Limitation, which gives the CDTFA more time to determine tax. Ask questions before you sign.
- Before you agree to findings. Once you say you agree, the report moves toward billing. Review the working papers first.
- When a Notice of Determination arrives. You generally have 30 days from its date to pay or file a petition for redetermination. (CDTFA Publication 17)
Your representative is authorized with form CDTFA-392, which lets them speak with the CDTFA about your account.
What records will the auditor ask for?
For a sales and use tax audit, the auditor reviews your books, the source documents behind them, and the returns you filed. The goal is to check whether you reported all gross receipts, properly claimed deductions, and paid tax on purchases made without tax. The auditor tells you at the first contact which records to prepare.
According to CDTFA Publication 76, expect requests for:
- Books of account. Income statements, balance sheets, general ledgers and other summary records, including state and federal income tax returns.
- Sales records. Sales journals, point-of-sale reports, cash register tapes, sales invoices and contracts.
- Purchase records. Purchase invoices and purchase orders, including equipment and supplies bought without tax from out-of-state vendors.
- Bank statements for the audit period.
- Exemption support. Resale certificates, exemption certificates, bills of lading and other documents behind claimed exempt sales.
- Return working papers. Copies of the returns you filed with the CDTFA and the schedules used to prepare them.
If records are missing, tell the auditor what you do have. Missing records can sometimes be rebuilt from supplier or customer information. Otherwise the auditor may estimate. Publication 76 says to keep records at least four years and to keep audit-period records until the audit and any dispute are complete.
What if you disagree with the audit findings?
You can dispute the findings at several steps, starting with the auditor and ending, if needed, with an independent appeal. Deadlines apply at each step, and the most important is the 30-day window after a Notice of Determination.
- With the auditor. Explain why you disagree and provide documents. The auditor may adjust the results or ask for more information.
- With the audit supervisor. If you still disagree, you can meet with the supervisor and present your support.
- With a CDTFA representative. If the report notes that you disagree, a letter gives you 10 days to make an appointment with a CDTFA representative. This is the last step before billing.
- Petition for redetermination. After a Notice of Determination, you generally have 30 days from its mailing date to file a written petition. If you don't pay or petition in time, a 10% penalty applies to the unpaid amount.
- Appeals. A petition is reviewed by CDTFA's Business Tax and Fee Division, then can go to an appeals conference with the Appeals Bureau, then to the Office of Tax Appeals, an independent state agency. (CDTFA Publication 17)
Interest continues while you appeal, so the CDTFA suggests considering paying at least the undisputed portion. If you miss the petition deadline, you can still pay and then file a timely claim for refund.
Why a former CDTFA auditor helps
A representative who has worked inside the CDTFA knows how auditors plan tests, choose samples and document findings. Our co-founder, Shawn Zali, is a former CDTFA auditor with more than seven years at the agency.
- Experience on both sides. Shawn spent more than seven years at the CDTFA auditing businesses before moving to the taxpayer's side.
- A team of Enrolled Agents and former state auditors. They prepare audit responses, refund claims, returns and voluntary disclosure requests.
- Based in Irvine. We work with California businesses from our office at 2575 McCabe Way, Suite 210, Irvine, CA 92614. See Orange County tax relief.
Every audit depends on its facts. We'll tell you what we see in the auditor's work and which options you may qualify for.
What an audit can reveal besides a bill
An audit sometimes shows problems, or overpayments, beyond the audit itself. If the auditor finds that you overpaid, the CDTFA can issue a Notice of Refund. Two related situations come up often:
- Overpaid tax. If you reported tax on exempt sales or sales for resale, you may have a refund to claim for periods outside the audit. See CDTFA sales tax refund claims. We prepare refund claims on a contingency fee basis.
- Unfiled periods or unreported use tax. If some periods were never filed, or purchases were made without tax, see California sales tax return filing and California use tax help.
Frequently asked questions about sales tax audit representation
Do I have to meet the auditor myself?
Not for most of the audit. If you tell the auditor at the first contact that a representative will handle it, the auditor can schedule with your representative. The auditor may still ask questions about your operations or request a tour of the premises, and the CDTFA suggests you consider attending the exit conference.
Can a representative delay an audit start date?
You, or your representative, can ask. Publication 76 says auditors can be flexible about the start date and that you normally have up to two or three weeks to prepare. For significant delays, the auditor may ask you to sign a Waiver of Limitation.
How long does a CDTFA audit take?
It depends on the size and complexity of your business, the condition of your records, and whether you dispute the findings. Appeals add time, and Publication 17 describes several review steps after a petition.
Can you take over an audit already in progress?
Yes. With a signed CDTFA-392, a representative can step in during fieldwork, after the exit conference or after a Notice of Determination. The earlier they start, the more steps remain where documents can be presented.
Is sales tax audit representation different from IRS audit representation?
Yes. A CDTFA audit tests sales and use tax reporting under California rules, while an IRS audit examines federal tax returns. We handle both through our audit representation services. For IRS balances after an audit, see tax resolution services.
Talk to a former CDTFA auditor about your audit
Tell us where your audit stands: a first call, fieldwork under way, proposed findings or a Notice of Determination. One of our Enrolled Agents or former state auditors will review it in a Free 30-minute consultation, or call (866) 900-9001.
Tax Resolution Plus Inc. is a private firm in Irvine, CA, and is not affiliated with the IRS, the CDTFA or the FTB. This article is general information, not tax advice for your situation.