By Phillips Murrah Attorney Chase H. Schnebel
The state of Oklahoma has ramped up efforts to collect tax revenue from those that may not be paying their fair share. Senate Bill 1579, signed into law in May, directs the Oklahoma Tax Commission “to enhance agency efforts to discover and reduce fraud and abuse of sales and use tax exemptions provided pursuant to the Sales and Use Tax Codes and the nonfiling and underreporting of sales and use taxes due and owing.”
The fiscal impact statement for SB 1579 has an estimated cost of approximately $4 million, but estimates increased revenues in excess of $50 million, with $26 million from increased sales tax collections. The law also directs the OTC to increase its audit staff to detect “through the use of enhanced technology” those who may owe the state money. With an estimated addition of 50 auditors, there is no doubt that the number of audits will increase.
An audit will typically start with the OTC requesting access to substantial business records. During the process, a taxpayer can expect to receive ongoing requests for documentation and explanations. The audit process involves close scrutiny of accounting records, tax returns, transactional documents, banking records and other relevant business records. If the audit results in a determination that the taxpayer owes tax, the OTC will issue a proposed assessment that may also include penalty and interest assessments.
A tax audit can be an invasive process and, upon receipt of an audit notification, individuals and businesses often feel vulnerable. A strategic approach to organizing and producing business records can substantially reduce exposure to assessments and the amount of time and resources necessary to complete the audit. Experienced tax professionals have knowledge of OTC audit procedures, statutes and regulations, which can be helpful in closing the audit process. If the OTC issues a proposed assessment, there are administrative procedures available that allow taxpayers to protest the assessment, request a waiver of penalty and interest assessments, and request an installment agreement to ensure a one-time assessment does not result in closure of the business.
The prospect of a state tax audit can be frightening and the process can be disruptive. To achieve the most desired possible outcome, it is important to involve tax professionals at the very beginning of the audit.
Chase H. Schnebel is an attorney at Phillips Murrah PC who specializes in tax issues.