('76 Contributor) The burden of sales and use tax compliance, reporting and audits for small business is one of many reasons that a rational person should think twice, thrice and beyond before launching a new enterprise.
My 10-person technical service shop in metro Denver recently received a long-awaited sales and use tax audit report. Tax due was less than a hundred dollars. No business can run completely error free. Confirmation that we were 99.999875% compliant over the five-year period was cause of celebration. My controller received praise and a raise.
Taxpayers beware of the real cost of a sales tax audit. Here is the estimated tab from ours:
· State auditor on site 8 business days ($3,500 borne by the state)
· Estimated report compilation time ($2,500 borne by the state)
· Accounting hours preparation ($2,250 cost to the company)
· Answering questions, research during audit ($1,600 cost to the company)
· Owner time to clean rest room after every “visit” by the auditor ($150 cost to company)
(The hygiene habits of our government guest will not be disclosed in this family friendly forum.)
Ten thousand dollars - when you add it all up, that was the estimated total cost to our Colorado economy! It's true that not all companies comply with sales/use tax complexities as well as we have. The threat of an audit encourages businesses to follow the rules.
But only a state would deem it cost-effective to fully prosecute an eight-day audit of a company that on the first day could be identified as highly compliant. The return on investment of this audit was a minus 98% from the perspective of the state.
Is it any wonder why employment growth is anemic and the state budgets are in the red?