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How a Reverse Audit May Make You a Hero

Superhero_GI-817347476-BW-MDBe the hero of your company by finding cash that may be used to fund your boss’s wish list project or launch management’s expansion program. A reverse audit is a great way to recover tax dollars with minimal upfront costs. Here are five questions you should ask, and the answers you should expect, to make sure your reverse audit is successful.

Why Conduct a Reverse Audit?

A reverse audit looks for overpaid sales and use taxes, and recoups this cash from states and vendors.  Overpaying sales tax is a common occurrence among manufacturers because sales tax exemptions are complex and cover a wide range of purchases used in production.  Most manufacturers don’t have procedures set up to easily apply these exemptions to all purchases. Instead, they often rely on a reverse audit to recoup overpaid taxes.

Five Questions to Ask

A successful reverse audit should require minimal time commitment from you and your staff, is often paid on contingency, and includes sales tax training, as well as other value-added services.  Here are five questions we recommend you ask, and our answers:

1) How much of my time should the review take? 

Most manufacturers are pleasantly surprised at how little time and resources are required by them during a reverse audit.  We have a kick off meeting to understand your operations, review your purchase history and pull sample data.  Arrangements also are made to give us access to your AP records and use tax accounts.  We then work independently to review records and report findings.

2) How is the reverse audit priced? 

Most reverse audits are billed on a contingency basis as a percentage of the refunds.  Factors used to determine the right percentage include the size of your company, number of facilities reviewed, the logistics of your AP records, as well as other services included in the review.

3) Does the review include training?

The reverse audit will identify where your company is overpaying sales tax.  We also train key employees to help avoid future overpayments.  We cover how to apply the exemptions and reduced rates available in your state.  Our training is state specific, focused on your industry and customized to your company.  

Sales Tax Training for Manufacturers CHEAT SHEET (shhh!)

4) Does the review look for underpayments? 

Our sales tax experts recognize underpayment red flags when reviewing A/P records.  Our final report gives you a high level overview of underpayments. If significant underpayments that put your company at risk during an audit are identified during the review process, we always recommend alternative solutions to address this risk.

5) What else does the reverse audit cover?

Looking for overpaid sales and use taxes and alerting you to possible underpayments are not the only subjects addressed in a reverse audit. Our review includes a sales tax nexus questionnaire, an evaluation of your exemption certificate practices, as well as the staff training discussed above. 

Ask the right questions and your reverse audit should be an affordable, low maintenance way to find cash now and not overpay sales and use tax in the future. Learn more about reserve audits and other ways to "find cash" with these sales and use tax services. 

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Lauren Stinson, CMI
Written by Lauren Stinson, CMI
As a Principal with Cherry Bekaert, Lauren serves as the National Leader for the Sales & Use Tax practice within the Firm’s State & Local Tax group. Based in Cherry Bekaert’s Atlanta practice, Lauren is an expert on sales and use tax issues that directly impact manufacturers, technology businesses and eCommerce sellers on the state and national levels.

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