Sales tax audits are relatively rare but expensive when they happen. Most states rotate auditors through a small sample of registered sellers each year, targeting high-volume businesses, businesses with unusual filing patterns, and businesses flagged by customer complaints or third-party reporting. If you're registered in any state, keep these records current — an auditor's first request will be some subset of this list.
Records to maintain
- All sales invoices for the audit period (usually 3-4 years back), with date, customer, ship-to address, taxable amount, tax collected, and tax rate.
- Exemption certificates for every non-taxed sale. Missing a certificate = that sale becomes taxable, even after the fact.
- Sales tax returns filed plus proof of payment.
- Credit memos and refunds with original invoice reference.
- Sales by ship-to state, matched to filed returns. Big mismatch between Shopify/Amazon reports and filed returns is an instant red flag.
- Resale and wholesale transactions separately tracked, with buyer's resale certificate on file.
Common audit findings
- Missing exemption certificates on tax-free sales. The state assesses the tax that should have been collected. This is the single biggest audit finding for e-commerce sellers.
- Tax collected at wrong rate (origin instead of destination, or state only without local).
- Shipping charged as non-taxable when the state actually taxes shipping on taxable products.
- Gaps in nexus registration — auditor finds you had physical nexus via FBA inventory before you registered.
- Marketplace-facilitated sales included in the return as taxable when they should be on a separate line.
During the audit
Designate a single point of contact. Respond to auditor requests within their stated timeline (usually 10-30 days). If you're missing documentation, say so honestly — DOR auditors penalize deceptiveness far more than missing data. You can often reconstruct missing records from Shopify/Amazon/Stripe exports.
After the audit
If you receive an assessment you disagree with, most states give you 30-60 days to file a formal protest. Beyond that, you can appeal to the state tax appeals board and eventually state court. Hire a tax attorney if the assessment is material ($10K+).