Maine Sales Tax Audit Readiness Checklist
What This Issue Means
A sales tax audit is a formal review by Maine Revenue Services of your sales tax returns, business records, and tax payments for a specific period. The audit examines whether you correctly identified taxable sales, applied the right tax rate, collected tax from customers, and remitted the correct amount to the state. An audit notice informs you that the state has opened a formal examination of your account and sets a deadline for your response.
Why the State Requires This
Maine Revenue Services conducts sales tax audits to verify compliance with Maine sales and use tax laws, collect unpaid taxes if discovered, and maintain the integrity of the tax collection system. The state may select your account based on statistical sampling, unusual filing patterns, third-party information, or when your tax liability appears inconsistent with reported income or your NAICS code industry norms. Some audits are triggered automatically when certain thresholds are met related to sales tax nexus, economic nexus, or marketplace facilitator obligations.
What Happens If This Is Ignored
Failure to respond to an audit notice by the deadline may result in Maine Revenue Services issuing a Jeopardy Assessment based on incomplete information. The state calculates what it believes you owe based on your records, which often results in a higher tax bill than if you provided documentation. The state may also impose penalties and interest on unpaid or underpaid taxes, and unpaid assessments may result in collection actions such as liens or levies.
Understanding Your Sales Tax Obligations
Before responding to an audit, you should understand what Maine Revenue Services reviews during examinations. The audit may cover various tax types, including use tax on out-of-state purchases, sales of taxable services, digital products, and physical goods. Records related to exemption certificates, resale certificates, and sales tax exemption certificates are essential for properly documenting exempt transactions.
Step-by-Step Checklist
Step 1: Read and Understand the Audit Notice
Review the entire audit notice carefully, identifying the specific tax period being audited, the response deadline, the requested books and records, and the assigned auditor’s contact information. Keep the notice in a safe, accessible location, and verify that your Sales and Use
Tax Certificate of Registration information matches the audit details.
Step 2: Organize Your Business Records
Gather sales tax returns filed through the Maine Tax Portal, general ledgers, sales journals, income statements, sales invoices, receipts, and point of sale records for the audit period.
Collect records showing purchases of taxable items for resale, exemption certificates from nonprofit organizations or other exempt buyers, resale exemption certificates, and documentation of use tax payments on items purchased without tax.
Step 3: Review Exemption Documentation
Verify that you have valid exemption certificates for all exempt sales claimed during the audit period, including properly completed resale certificates and exemption affidavits. Confirm that each exemption certificate consists of the exemption reason, buyer information, and all required fields, as certificate validation is critical during audits to support exempt transactions.
Step 4: Identify Missing Records
Review the audit notice to determine which specific records are requested under recordkeeping requirements and note any missing or unavailable documents. Determine whether you can reconstruct missing records using bank statements, accountant records, or other business documents, and contact the auditor if records are genuinely unavailable.
Step 5: Consult a Tax Professional
Consider hiring a certified public accountant, enrolled agent, or tax attorney to assist with the audit process, especially if you have complex issues involving digital subscriptions, marketplace facilitator relationships, or multi-state operations. Provide any tax professional with copies of the audit notice and your records, and authorize them to communicate with the auditor on your behalf if desired.
Step 6: Prepare Your Response Package
Organize all requested records in a logical format and create a cover letter that includes your business name, Federal Employer Identification Number, account number, tax period, and the auditor’s name. List all documents you are providing, note any missing records with brief explanations, and avoid making informal agreements or admissions without careful review.
Step 7: Submit Your Response
Make two complete copies of all documents before sending anything, and keep one copy for your records. Send your response by the deadline using certified mail with a return receipt or
hand-deliver the documents to Maine Revenue Services, and request written confirmation that the auditor received your submission.
Step 8: Respond to Follow-Up Requests
Monitor your mail for additional requests or questions from the auditor regarding specific transactions, tax rates applied, or exemption documentation. Contact the auditor in writing to request an extension if you cannot meet a deadline, and keep copies of all correspondence, including emails and letters.
Step 9: Review Preliminary Findings
When the auditor completes the examination, review any preliminary findings or assessment carefully to understand which transactions, tax exemptions, or taxable services issues were identified. Note whether the auditor is proposing adjustments to your tax liability, and review the calculation of any additional tax, penalties, and interest proposed.
Step 10: Decide on Appeal or Acceptance
Review the Maine Revenue Services guidance available on the Maine Revenue Services website regarding audit appeal rights and understand the deadline for requesting reconsideration. You have 60 days from receiving an assessment or determination to file a petition for reconsideration, or you may appeal to the Board of Tax Appeals or the Maine
Superior Court.
- Missing response deadlines: Failing to respond by the deadline can result in the state
- Submitting incomplete exemption certificates: The auditor cannot accept exempt
- Not keeping submission copies: Always retain a copy of every document you send to
- Creating new records during an audit: Do not create new receipts, invoices, or
- Failing to preserve records after audit: Keep all audit-related documents for at least
- State tax notice review and response
- Penalty and interest reduction options
- Payroll and trust fund tax assistance
- Payment plan and relief eligibility review
- Representation with state tax agencies
Step 11: Preserve All Documentation
Keep all audit-related documents and correspondence for at least 6 years after the audit closes, per Maine recordkeeping requirements. Maintain complete records of your response submissions, preliminary findings, final assessment notices, and all communications with the auditor for future reference.
Common Mistakes to Avoid issuing an estimated assessment without your input, often leading to higher tax penalties than if you provided actual records. sales without valid resale certificates or exemption certificates that include all required information, proper signatures, and clear exemption reasons for each transaction. the auditor to protect yourself if documents are lost or there is a dispute about submissions. records; only provide original, authentic business documents to maintain credibility. six years after the audit closes, as Maine law requires sales tax records to be retained for a minimum of six years.
Frequently Asked Questions
What if I no longer have records from the audit period?
Notify the auditor in writing about which records are missing and explain why they are unavailable, whether due to business closure, system failure, or other documented reasons.
The auditor may request alternative documents, such as bank statements, accountant records, or third-party records, to verify your tax liability and the proper application of tax rates.
Can I request an extension if I need more time?
You can contact the auditor in writing before the deadline to request additional time to gather books and records or locate exemption certificates from customers. The auditor has discretion to grant reasonable extensions, but do not miss the original deadline without first requesting an extension through proper channels.
How long does a sales tax audit typically take?
The state does not publish specific timeframes for completing audits, as they can take anywhere from several months to over a year, depending on business complexity, transaction volume, and response speed. Staying responsive and organized can help move the process along more efficiently and reduce total audit duration.
Received a State Tax Notice?
If you’ve received a state tax notice and aren’t sure how to respond, we can help you review your options and next steps.
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