23 Oct The Tax Audit Nobody is Expecting and It Is Worse Than The IRS

Audit Horror Story…Just in time for Halloween

Nearly every business owner I have ever met fears the IRS audit.  Long days of dragging out boxes of faded receipts to prove you spent 15.99 on that box of pens is nobody’s idea of a good time.  What many owners and administrators fail to realize is that the IRS is not the only agency that may audit you.  Many states have audit departments as well.  In the Commonwealth of Massachusetts a Sales Tax Audit can be among the worst and guess what all businesses need to file a sales and use tax return.

Frequently business owners will buy items from out of state and have them shipped to them.  Most folks are aware that items shipped out of state are not subject to Massachusetts sales tax, and items shipped to Massachusetts from another state are often tax free as well, but they are mistaken.  The item may not be taxed by the state it is shipped from but it is TAXABLE IN THE STATE OF MASSACHUSETTS AND YOU MUST FILE AND PAY THE TAX ON IT.  Recently an associate let me know about a not so fun Massachusetts sales tax audit that took place locally in Nantucket, MA. (yes this is real and this happens…a lot)  The long and expensive process could have been avoided by filing a Business Use Tax Return Form ST-10 or an Individual Use Tax Return From ST-11.  In the State of Massachusetts you have the option of using an estimated form based on gross income, but items purchased from out of state with a ticket price over $1000 are excluded from that approach.  While you do not need to register with the state and file the form online you are required to comply with this statute.  

As always it is best to consult with your CPA or tax attorney about your individual exposure. For more information online check out the MA DOR website and read carefully.  MA Guide to Sales and Use Tax