Sales tax is one of the most complex areas of tax law. Rules vary between counties and specific municipalities, and the wide range of ways in which different goods and services are taxed can make it challenging for businesses to remain compliant.
For small- and mid-sized companies in Georgia, sales tax can pose a significant audit risk. The Department of Revenue has recently made some regulatory changes impacting exemptions and payment obligations. When you combine that with new adjustments to compliance tools, it’s clear that they are ramping up enforcement.
Additionally, remote sellers who sell more than $100,000 in sales in Georgia have been required to collect and remit sales tax since 2019—but not every remote business is compliant, leading to an increase in audits of out-of-state businesses with Georgia customers. Learn more about what puts you at risk for an audit, how to prepare, and the potential outcomes of an audit.
Key Takeaways
- The Department of Revenue often targets high-risk industries, including retail, restaurants, and e-commerce.
- Missing exemption certificates and use tax errors are common mistakes uncovered during sales tax audits.
- If your audit goes poorly, you may face penalties, interest, and personal liability for unpaid sales tax.
- Working with a Georgia sales tax attorney can help you prepare for and respond to an audit.
Why the Georgia DOR is Focusing on Sales Tax Audits
The number one reason that the DOR audits sales tax returns is to ensure compliance with sales tax rules and requirements. The DOR takes trust fund taxes very seriously because those taxes are collected from other taxpayers and then remitted by businesses. If a business doesn’t pay sales tax, it’s taking the funds that have already been paid by other state taxpayers.
How does the DOR decide which returns to audit?
The Department of Revenue utilizes electronic returns, centralized filing systems, and data analytics to identify discrepancies in sales reported across various agencies. With the agency’s focus on accuracy and thoroughness, it doesn’t take much for them to find areas where businesses are likely underreporting sales to avoid taxes. By the time an auditor contacts a business owner, the Department of Revenue has likely flagged the owner’s account for potential underreporting for months.
But remember, it’s not only non-compliant business owners who get audited—whether an audit is random or targeted, compliant business owners get audited, too. Regardless of which group you fit into, it’s important to know your risk factors and what to expect.
High-risk industries
Certain industries are at greater risk of being audited for sales tax compliance than others. High-risk industries include those that have a high volume of sales, have a high percentage of cash transactions that are harder to trace, or have historically underreported or misclassified revenue. For example, the DOR does a lot of restaurant sales tax audits.
Additionally, businesses in industries with complex taxability rules may be audited more frequently. For example, businesses that handle a wide range of products that are taxed in different ways, both goods and services, and a mix of exempt and non-exempt sales.
Audit triggers
Whether or not your business is in a high-risk industry, you may still be audited if you trip certain triggers. For example, if you have frequent late filings, missed or late payments, excessive refund claims, or inconsistent sales data, the Department of Revenue may want to look closer. They may also look for businesses whose data falls significantly outside the norms for their industry.
What Happens During a Sales Tax Audit
When the DOR decides to audit a business taxpayer, they will send you a letter notifying you of their intent to audit you. However, they’ll likely use the phrase “selected for examination,” not “audit.” The auditor assigned to your case will contact you to set up a date and time to meet.
During this first meeting, plan to discuss the nature of your business, the accounting or record-keeping system you use, and other basic information related to your company. At this point, it’s highly recommended that you already have your documents in order. Some audits can be finished at this step if a business owner has their records organized and ready for the auditor.
After the auditor has gotten their questions answered, they’ll examine your tax returns, financial records, and other documents to determine whether or not your tax returns are accurate.
Typically, the auditor prefers to do audits at the taxpayer’s place of business. However, they may also conduct them at the taxpayer’s representative’s office or at a DOR office.
After the auditor finishes their examination, they will make their final determination regarding any adjustments that must be made. Depending on the outcome of the audit, you may owe more money or receive a refund. They will inform you of these changes during a final meeting, but they will then send it to you in the mail as well.
Documents to Prepare
The more prepared you are for the audit, the easier it will be. Documents you may want to organize ahead of time include:
- Your Sales and Use Tax Registration Certificate
- Business license
- Federal EIN and state tax account numbers
- Organizational documents – for example, corporate charter or operating agreements
- List of accounts
- List of business locations
- Names of responsible parties
- Sales journals and transaction summaries
- Point-of-sale reports
- Invoices and receipts
- Sales tax returns for the entirety of the audit period
- Bank statements
- Merchant processor statements
- Purchase and expense records
- Exemption certificates
Working with a tax attorney at this stage is highly recommended, as they can help you gather and organize all relevant documentation.
There are also specific types of documentation that are industry-specific. For example, contractors should gather material invoices and job costing reports, and restaurants should gather Z-tapes and merchant statements. Your tax attorney can advise you of documentation that’s unique to your industry.
Common Sales Tax Issues
During the examination of your records, the auditor will look for both intentional fraud and unintentional sales tax mistakes. Some of the issues they may uncover include:
- Failure to collect tax on taxable sales: Businesses may unintentionally treat certain fees and charges as exempt, even when they are not.
- Improper use of exemption certificates: Exemption certificates must be up-to-date and completely filled out. Missing, expired, or incomplete certificates may result in the associated transactions being treated as taxable.
- Failure to pay use tax: When businesses purchase goods from out-of-state or from an individual and do not pay sales tax, they must self-report and pay use tax. This is a fairly common error uncovered in audits. Business owners must also pay sales or use tax on taxable inventory that they take for personal use.
- Misclassifying items: Bundling taxable and non-taxable items or services together can result in over- or under-collection, both of which can lead to issues for businesses.
- Record-keeping errors: Failing to maintain daily sales records, inaccurate POS reports, and inconsistent deposits can all lead to further investigation by auditors.
Industry-Specific Issues
Depending on which industry you work in, your business may also have industry-specific concerns that the auditor is looking for. A few examples include:
- Restaurants: Unreported cash sales, tax not charged on fees, use tax not paid on employee meals.
- Construction: Misuse of resale certificates, not paying use tax on out-of-state materials purchased, not separating labor and materials in billing records.
- Retailers: Misapplication of local tax rates, treating taxable items as exempt
- Auto repair: Not charging tax on parts on service invoices
- E-commerce: Not collecting Georgia sales tax after reaching more than $100,000 in sales to customers in this state.
Consequences of a “Failed” Audit
If the auditor finds inaccuracies or errors in your records and tax returns, you should be prepared for some financial consequences. These include:
- Back taxes, penalties, and interest: Once the DOR makes an adjustment to your tax bill, you’ll be liable for the newly assessed taxes, plus any penalties and interest. Penalties for sales and use tax errors vary. Failure to pay sales and use tax by the due date results in a 5% penalty, plus 5% for each month it remains unpaid, capped at 25%. If a return is found to be false or fraudulent, the penalty is 50% of the tax due.
- Business disruption Audits take time and resources, and that can prevent you from handling other essential business operations.
- Personal liability: Under state law, the Department of Revenue can hold corporate officers, LLC members, and responsible employees personally liable for unpaid trust taxes. Your personal assets could be at risk if your business cannot pay your sales and use tax debt.
- Potential criminal exposure: Most tax errors are unintentional and don’t warrant criminal investigations. But if auditors find evidence of intentional underreporting and fraud, the matter may be referred to the Georgia Attorney General for investigation.
Preparing for an Audit
Ideally, you should always be prepared for an audit. This way, if you do receive an audit letter, it’s just a matter of gathering your records and making them available to the auditor.
- Prioritize recordkeeping – Start by keeping organized, accessible records. It’s far too easy to put financial records in a stack and plan on getting to them “when things slow down.”
- Hire a professional – Consider working with a CPA who can maintain records on your behalf, chase down documentation missing from your records, and alert you to any issues.
- Keep certificates up to date – Review your exemption certificates regularly to avoid invalid or expired certificates.
- Do internal audits – Set up internal compliance reviews with your financial department. If you can catch errors before they reach the Department of Revenue, you can take corrective action and avoid hefty penalties.
Keep your records organized in such a way that you can easily access the years that your auditor is requesting. You don’t want to overshare and unintentionally give them documentation from a year that isn’t even included in the audit.
When to Talk to a Georgia Sales Tax Attorney
Business owners sometimes attempt to handle sales tax audits on their own, turning to a tax attorney only once they realize they don’t have the necessary documentation or that they’ve made a critical error. But the closer to the audit you contact an attorney, the less time they have to review your records and advocate for you.
You should contact a Georgia sales tax attorney right away if:
- You’ve received an audit notice.
- There are missing records or inconsistencies in your files.
- An auditor starts looking for issues outside the initial scope of their audit.
- You believe the auditor is using inaccurate methods to review your records.
- You want to protest a proposed assessment.
- You want to secure a GA payment plan or other form of tax relief.
- You need to protect yourself from personal liability.
When it comes to sales tax audits—or any type of business tax audit—being proactive is key to your success. The sooner you connect with a tax lawyer who has GA DOR experience, the more time they have to prepare for your audit and solve any issues they uncover. Your industry matters, and it’s important to find a tax attorney with experience handling audits in your field.
At Wiggam Law, we have extensive experience representing business owners in high-risk industries, and we know what to look for before, during, and after an audit. Contact us now to protect your business and yourself. Call us at (404) 233-9800 or reach out online now to schedule a consultation.
Frequently Asked Questions
What are the most commonly audited industries in Georgia?
Commonly targeted industries include restaurants and food service, retail, construction, e-commerce stores, auto dealers and repair shops, and service providers.
What mistakes do businesses make in sales tax audits?
Business owners may fail to gather the necessary documentation. Business owners may also overshare by providing documentation outside the scope of the audit, which puts them at risk for further tax assessments. Interpretation of the tax law may also come into play, complicating audits even further for business owners.
Do I need an attorney for a sales tax audit?
Legally, you do not have to have an attorney for a sales tax audit. However, it is generally in your best interest to retain one.
Can I appeal a sales tax assessment?
You can officially appeal an assessment via the Georgia Tax Tribunal. If you’ve only received a proposed adjustment, you can file a protest.
Sources:
https://dor.georgia.gov/taxes/audits-and-collections/audits
https://dor.georgia.gov/business-tax-audits
https://dor.georgia.gov/taxpayer-bill-rights
https://dor.georgia.gov/taxes/sales-use-tax
https://www.salestaxhelper.com/resources/blog/2025/september/georgia-sales-tax-audit-guide/
https://dor.georgia.gov/penalty-and-interest-rates#Sales%20&%20Use%20Tax
https://law.justia.com/codes/georgia/title-48/chapter-2/article-2/section-48-2-52/
