One of the most common issues in a California sales tax audit is the handling of sales for resale. This deduction is frequently claimed by California taxpayers and is a key focus for the California Department of Tax and Fee Administration (CDTFA).
CDTFA auditors meticulously examine the accounting methods used by taxpayers and employ various procedures to verify the amounts claimed. Taxpayers often estimate this deduction, which can lead to issues if the auditor’s verification procedures uncover discrepancies.
If you are unable to provide resale certificates, you may use the XYZ letter process. The CDTFA will issue "retroactive resale certificates" to your customers. If a customer completes and returns the XYZ letter, the goods will not be taxable. However, if the customer is untraceable or refuses to sign, you will be held liable for the sales tax.
If you’re undergoing a CDTFA audit, allow LNK Tax Group to represent you and advocate on your behalf. We will fight for every valid deduction and provide the information, advice, and support you need. Contact us as soon as you receive a CDTFA audit notice so we can start working on your case early in the audit process.
