Indiana Sales Tax Audit Readiness Checklist
Introduction
Indiana sales tax compliance is a core obligation for businesses that collect and remit sales tax under Indiana law. The Indiana Department of Revenue regularly reviews sales tax returns to confirm accurate reporting, proper payment, and adherence to the state's filing schedules.
A sales tax audit can feel disruptive, but it follows a defined audit process that begins with a written notice and document review. Understanding how Indiana sales tax audits work and preparing records early helps reduce audit risk, limit disruption, and support apparent tax compliance throughout the review.
What This Issue Means
An Indiana sales tax audit is a formal examination of a business’s sales and use tax activity by the Indiana Department of Revenue. The audit reviews whether taxable sales were reported correctly, exemption certificates were properly maintained, and sales tax returns reflect actual sales activity.
The audit notice identifies the audit period and the records requested, which may include sales tax returns, point-of-sale data, and exemption documentation. Under Indiana tax laws, the statute of limitations is generally 3 years, but it can extend to 6 years or more when returns are understated, fraudulent, or not filed.
Why the State Issued This or Requires This
The Department of Revenue initiates sales tax audits to protect state tax collections and ensure uniform tax compliance across industries. Audits may be triggered by filing inconsistencies, audit risk indicators, unusual taxable sales patterns, or routine selection based on filing frequency or industry type.
In some cases, third-party data, economic nexus thresholds, or comparisons of sales tax liability may prompt a review. The state is not required to disclose the specific trigger, but it must provide notice and follow established tax collection procedures.
What Happens If This Is Ignored
If an audit notice is ignored, the Indiana Department of Revenue may complete the sales tax audit using estimates and available data. This often results in higher tax liabilities because exempt sales, deductions, or use tax offsets cannot be verified without records.
Unresolved audit findings can lead to assessments, penalties, and interest, followed by tax collection action if unpaid. Ignoring the process also limits appeal options and weakens the ability to dispute audit determinations later.
What This Does Not Mean
An audit notice does not mean fraud, criminal conduct, or automatic tax liability. Sales tax audits are standard compliance reviews used by state agencies to verify accurate reporting, not accusations of wrongdoing.
An audit is not a demand for payment and does not mean the Department of Revenue has already concluded. The process allows time to provide documentation, clarify exempt sales, and correct reporting issues before final determination.
Checklist: Indiana Sales Tax Audit Readiness
Step 1: Understand the audit notice
See which tax periods are under review, what records are requested, and the response deadline stated by the Indiana Department of Revenue. Confirm the auditor’s contact details and whether the audit focuses on sales tax, use tax, or both.
Step 2: Confirm sales tax registration and nexus
Review whether the business was registered adequately for Indiana sales tax during the audit period. Consider economic nexus rules, especially for remote sellers, after South Dakota v.
Wayfair, to confirm registration obligations.
Step 3: Gather required sales tax records
Collect sales tax returns, sales journals, point-of-sale reports, and billing system data for the audit period. Include documentation for taxable sales, exempt sales, and sales and use transactions.
Step 4: Organize exemption documentation
Assemble exemption certificates, resale certificates, and Form ST-105 records tied to exempt sales. Missing or invalid exemption certificates increase the exposure of exempt sales during the audit process.
Step 5: Reconcile taxable sales and use tax
Compare reported taxable sales to internal sales records to identify discrepancies. Review purchases that may require use tax to reduce assessed unpaid taxes.
Step 6: Verify account details in INTIME
Use the INTIME portal to confirm sales tax return filings, balances, and audit notices. Check suggests errors in taxpayer information, filing frequency, or sales tax liability posting.
Step 7: Identify audit issues and explanations
Note unusual transactions, bundled transactions, or operational changes during the audit period. Prepare clear explanations supported by records to address audit questions.
Step 8: Respond to the audit request
Contact the assigned tax auditor to confirm submission methods and deadlines. Ask about extensions if additional time is needed to gather tax documents.
Step 9: Submit documentation and track delivery
Send copies of the requested records using a method that provides delivery confirmation.
Retain complete copies and maintain a clear index of what was submitted.
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 10: Monitor communication and next steps
Respond promptly to follow-up questions and review any preliminary findings. Track deadlines for responses, conferences, or assessment appeals tied to audit results.
What Happens After This Is Completed
After the records are reviewed, the Indiana Department of Revenue issues a written audit report or assessment that explains its findings. If additional tax is assessed, the notice outlines payment options, penalties, interest, and appeal rights.
Common Mistakes to Avoid
Missing response deadlines, providing incomplete records, or failing to document exempt sales often increases assessed tax liabilities. Poor record retention and delayed responses also weaken the ability to challenge audit findings.
Frequently Asked Questions
How long does an Indiana sales tax audit take?
Timelines vary based on record quality and audit scope, but many sales tax audits take several months from notice to final determination.
Can an extension be requested?
Extensions are often granted when requested early and supported by a clear explanation for additional time.
What if records are missing?
Provide available records and document gaps clearly rather than recreating unsupported information.
Will the auditor visit the business?
Some audits are handled remotely, while others may involve an on-site visit depending on complexity.
Can audit findings be disputed?
Indiana allows 60 days from the date of a proposed assessment to file a written protest under state law.
Are penalties and interest applied automatically?
Interest applies by statute, while penalties may be waived if reasonable cause is shown.
Can a representative handle the audit?
A tax preparer, accountant, or attorney may assist if proper authorization is provided.
What is the audit statute of limitations?
The standard period is three years, extended to six years for significant understatements, with no limit for fraud or failure to file.
Closing
An Indiana sales tax audit is a structured review designed to verify tax compliance, not to presume error. Preparing records early, responding promptly, and maintaining clear documentation helps reduce audit risk and supports accurate resolution.
Understanding audit procedures, exemption certificate requirements, and filing obligations allows businesses to manage audits efficiently. Proactive compliance and organized records remain the most effective tools for navigating Indiana sales tax audits with confidence.
Facing State Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.
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