Written by Sam Brotman, Esq.
Knowledge is Power
At Brotman Law, we focus on providing as much as we can for our clients. Our strategy pages give you a detailed look at how we approach each type of tax issue – so you can understand what to expect when you work with us.
California State Taxes and Federal Regulations: Conflicts Between Federal and California Law
If your business conducts sales to other states, you need to be aware of how California sales tax rules apply to you — especially if you sell online.
California Use Tax Planning for Aircraft and Marine Vessels
As with most other property, the purchase and use of aircraft within California is subject to sales and use tax, but certain aircraft uses and purchases may be tax-exempt.
California Sales Tax and Leasing Transactions
Did you know what some leases in California may incur sales tax? We will explain what type of leases may be taxed by the state.
![What Is a California Sales Tax Exemption? [Definition & Examples]](https://sambrotman.com/wp-content/uploads/2024/01/The-Ultimate-Guide-to-California-Sales-Tax-Audits.jpg)
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What Is a California Sales Tax Exemption? [Definition & Examples]
If you own a business which produces and sells tangible goods, then you are obligated to pay sales tax to the CDFA.
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Negligence Penalties in California Sales Tax Audits
Generally, a penalty of 10% will be added if any part of the tax deficiency resulting form taxpayer's negligence or intentional disregard of the law.
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WHAT TYPES OF PENALTIES CAN I FACE IN A CALIFORNIA SALES TAX AUDIT?
California Department of Tax and Fee Administration (CDTFA) declared that it its policy is to encourage and assist all taxpayers in making an accurate and timely self-declaration of tax liability.
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Sales Tax Requirements for Retailers Outside of California
An out-of-state retailer “engaged in business in this state” (California) is required to register, collect use tax on taxable sales made to consumers in California, and remit this tax to the California Department of Tax and Fee Administration.
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California Sales for Resale and Resale Audits
A claimed sale for resale will be allowed in a CDTFA audit if it is supported by a resale certificate that is proper in form and is timely taken in good faith from a person who is engaged in the business of selling tangible personal property and who holds a California seller’s permit.
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What Is Sampling and Testing in a Sales Tax Audit?
A lot of the goals of the first meeting with the auditor are to go through the process and try to keep the auditor on pace.
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Your Rights as a California Taxpayer
The California Department of Tax and Fee Administration (CDTFA) administers the tax program for both business and property taxes for the State of California.
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WHAT IS USE TAX IN CALIFORNIA? (DEFINITION, EXAMPLES & EXEMPTIONS)
California use tax is a tax on the use of tangible personal property not otherwise subject to sales tax and is taxed at 7.25%, but there are exemptions!
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Secrets of a California Sales Tax Audit Defense
Sales tax audits are one of the areas of practice that I am most proud of at our firm. We have dealt with some very difficult cases and gotten some really phenomenal results.
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Should I Hire a California Sales Tax Lawyer to Help Me With My Sales Tax Audit?
While dealing with the fallout of a CDTFA sales tax audit is rarely pleasant, it is possible to mitigate the effect on your business, if you have the right help.
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How to File a California Sales Tax Audit Appeal
The process for appealing a CDTFA sales tax audit begins at the exit conference after the auditor has finished their investigation.
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How to Prepare for a California Sales Tax Audit
Preparing and organizing materials for a California sales tax audit is by and large a unique process based on the individual facts and circumstances of a particular matter.
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The California Sales Tax Audit Process
When you are the target of a California sales audit, the process starts by receiving a notice that you are being audited.
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The Audit Process Step by Step
Here's what happens from the moment you receive an audit notice to resolution:
- Notice received — The IRS sends a letter explaining what they're examining and what documentation they need
- Power of Attorney filed — We sign Form 2848, which means the IRS talks to us, not you
- Document review — We review every document before anything goes to the IRS. We provide exactly what's needed — nothing more
- Examination — The IRS reviews your records. For office and field audits, we attend all meetings in your place
- Proposed adjustments — If the IRS wants to make changes, they issue a written proposal. We review it line by line
- Negotiation or appeal — We challenge anything we disagree with. If we can't resolve it at the exam level, we take it to appeals
- Resolution — Case closed. We make sure you understand the outcome and what it means going forward
Why You Need Professional Representation
Here's the reality: anything you say to the IRS can be used against you. Even an innocent statement can be misinterpreted, taken out of context, or used to expand the scope of your audit.
Your CPA probably filed your return. That's great. But filing a return and defending one are two completely different skills. You wouldn't send your dentist to perform heart surgery — the same logic applies.
A qualified tax attorney knows IRS procedures inside and out, understands the legal standards the IRS must meet, and knows exactly how to position your case for the best possible outcome.
Appeals & Next Steps
If you disagree with the audit results, you have the right to appeal. The IRS Office of Appeals is independent from the examination division, and they settle the majority of cases they hear.
We've won over 100 appeals by building cases that are thoroughly documented and legally sound. The key is presenting a clear, well-organized argument that makes it easier for the appeals officer to rule in your favor.
If appeals doesn't resolve it, the next step is Tax Court. We're prepared for that too, but in our experience, most cases settle well before they get to trial.
How to Prevent Future Audits
Once your audit is resolved, the last thing you want is another one. Here's what we recommend to minimize your risk:
- Keep meticulous records — especially for deductions and business expenses
- Report all income — even if you didn't receive a 1099
- File on time, every time
- Use actual calculated figures rather than round numbers — while not a major audit trigger on its own, it's a best practice that signals accuracy in your records
- Work with a qualified tax professional who understands your situation
- Consider a proactive tax strategy engagement to optimize your structure and reduce risk
Want to make sure this doesn't happen again? After resolving your audit, we can help restructure your taxes to minimize future risk. It's the other side of what we do — and it's just as important as the defense. Learn about our tax strategies →
