How to Conduct a Sales Tax Self-Audit

Sales tax compliance isn’t a set-it-and-forget-it process. With changing tax laws and evolving business operations, it’s easy for errors to slip through unnoticed. A sales tax self-audit helps businesses take a proactive approach to stay compliant, identify gaps, and reduce the risk of costly penalties from state tax authorities.

What Is a Sales Tax Self-Audit?

A sales tax self-audit is an internal review of your sales tax collection, filing, and remittance processes. Its purpose is to ensure your business is correctly applying tax laws based on where you operate, what you sell, and to whom. By conducting a self-audit, you can uncover common issues such as incorrect tax rates, unregistered nexus states, or missing exemption certificates.

Why a Self-Audit Matters

Even well-managed businesses make mistakes with sales tax. For example, you may be collecting tax in states where you're not registered, or failing to collect tax where you have nexus. Small oversights can lead to significant penalties if caught during a state audit. A self-audit helps you catch and fix these problems before they escalate.

Steps to Conduct a Sales Tax Self-Audit

1. Determine Where You Have Nexus:

Start by identifying where your business has a sales tax obligation (nexus). This includes states where you have physical presence, remote employees, or meet economic nexus thresholds based on sales volume.

2. Confirm State Registrations:

Once you’ve identified nexus states, make sure your business is properly registered in those jurisdictions. Collecting tax without registration is a common error that can result in fines.

3. Verify Taxability of Your Products and Services:

Check the taxability rules in each state. Some states tax digital services and SaaS; others may not. Misclassification of your products can lead to over- or under-collection.

4. Review Sales Tax Collection Practices:

Look through your invoices and sales systems to confirm whether sales tax is being charged accurately. Check that the correct tax rates are applied and that exemption certificates are valid and up to date.

5. Reconcile Your Filings:

Compare your collected sales tax to what has been filed and remitted to each state. Discrepancies should be corrected as soon as possible.

6. Check Filing Frequency and Deadlines:

Make sure you are filing on time according to each state's required frequency—monthly, quarterly, or annually. Even a single missed deadline can trigger late fees or audits.

7. Document Your Findings:

Keep detailed records of your audit process, findings, and any corrections you make. This documentation is valuable if you're ever audited by a state.

How Manage My Sales Tax Can Help

Conducting a sales tax self-audit requires time, precision, and knowledge of complex tax rules. That’s where we come in. At Manage My Sales Tax, we help businesses review their compliance, identify risk areas, and resolve issues before they become costly problems.

Whether you need a full compliance review, help understanding nexus, or support cleaning up filing discrepancies, our team is here to support your business with over 20 years of experience in multi-state sales tax compliance.

Take the guesswork out of your sales tax process—partner with us today.

Visit Manage My Sales Tax to get started with your compliance check.

Book a consultation with us today! 👉 https://lisajonescpa.youcanbook.me/