Maryland Sales Tax Audit Readiness Checklist
What This Issue Means
A Maryland sales tax audit is an official examination of your business tax records by the
Comptroller of Maryland. The state reviews your sales, exempt transactions, and taxable sales to verify you reported and remitted the correct sales and use tax amount. This is a standard tax compliance verification process, not an accusation of tax fraud or immediate penalty.
Why the State Requires This
The Comptroller's Office conducts sales tax audits to ensure businesses comply with Maryland tax laws and report taxes accurately. Maryland’s Sales Tax Audit Program selects companies based on routine scheduling, unusual sales patterns, significant year-to-year changes, customer referrals, or follow-up from previous examinations. These audits verify that your financial documents match your reported tax liability amounts.
What Happens If This Is Ignored
If you do not respond to an audit notice by the deadline, the Comptroller proceeds without your input and may issue an estimated assessment. The estimated assessment will include the tax amount determined by the Comptroller, as well as applicable tax penalties and interest charges.
Collection actions may follow, including filing a notice of tax lien, levying bank accounts or wages, and intercepting state and federal refunds through the Maryland Tax Portal.
What This Does Not Mean
Receiving an audit notice does not mean you committed tax evasion or that the state found wrongdoing. A Maryland sales and use tax audit is a routine examination, not a criminal investigation or enforcement action. The Comptroller will not automatically assess additional tax liability or impose penalties. You have the opportunity to provide records and explain your tax reporting before any final determination.
Checklist: Steps to Take After Receiving a Sales Tax
Audit Notice
Step 1: Read the Audit Notice Carefully
Read every section of the notice from the Comptroller of Maryland, including the audit period, tax type, response deadline, assigned auditor’s contact information, and specific records requested. Note all dates and requirements listed on the notice.
Step 2: Gather All Requested Records
Collect sales receipts, purchase invoices, exempt sale documentation, exemption certificates, resale certificates, and all Maryland sales tax returns filed during the audit period. Organize your general ledger, financial statements, bank statements, and accounting records chronologically and create a list of everything you are providing.
Step 3: Review Your Sales Tax Returns
Locate all sales and use tax returns filed during the audit period through Maryland Tax Connect and compare reported sales with your accounting records and bank deposits. Note any significant differences, amended returns, corrections, or adjustments made on prior returns to explain during the audit review.
Step 4: Identify Missing Records
Review the audit notice for each specific document requested and determine which records you have and which are missing. For missing records related to out-of-state purchases, marketplace facilitator transactions, or digital goods sales, document what happened to them and prepare a written explanation for each missing record category.
Step 5: Prepare Written Explanations
Write a brief explanation of how your business operates, your bookkeeping practices for tracking sales and calculating sales and use taxes, and how you handle tax exemption claims. Explain any significant changes during the audit period, unusual transactions, business closures, relocations, or differences between your books and tax returns.
Step 6: Organize Records Logically
Create folders or sections for each month or quarter of the audit period and arrange documents chronologically within each section. Use page numbers or a numbering system for all documents, create an index listing every document, and make a complete copy for your records.
Step 7: Prepare a Cover Letter
Address the letter to the assigned auditor using the name on the notice and include your business name, Maryland sales tax license number, and the audit period. Provide a brief overview of your submission, list all documents included, explain any missing records, and include your contact information.
Step 8: Submit Your Response Before the Deadline
Review your deadline date on the audit notice and plan to submit early to avoid late filing through the compliance process. Use the submission method specified on the notice, such as mail, email, or in-person delivery. If mailing, use certified mail or delivery confirmation and keep proof of submission for your records.
- Missing the Response Deadline: Not responding by the deadline results in the
- Submitting Disorganized Records: Sending incomplete or unorganized financial
- Ignoring Follow-Up Requests: If the auditor sends a follow-up letter or calls requesting
- Failing to Keep Submission Copies: Always keep a copy of everything you submit to
- Not Filing Form 548 for Representation: If you want Maryland Sales Tax Audit
- 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 9: Keep Complete Records of Your Submission
File your copy of the cover letter with the submission date, save proof of submission, create a folder for all audit-related correspondence, and document the submission method. Write down the auditor’s name and contact information, and confirm you have kept copies of everything sent to the state tax authorities.
What Happens After This Is Completed
After you submit your response, the auditor reviews your records and supporting documents, which may take weeks or months, depending on the business's complexity. The auditor may contact you if additional information is needed or if questions arise regarding Maryland transactions, marketplace facilitator laws, or the validity of a tax exemption certificate. Once the review is complete, the Comptroller issues an audit report and, if additional tax is owed, a notice of assessment specifying the extra tax, tax penalties, and tax interest charges.
Common Mistakes to Avoid
Comptroller proceeding without your input and issuing an estimated assessment based on limited information. Always submit your response before the deadline, even if some records related to quarterly taxes or exemption certificates are incomplete or unavailable. documents and purchase invoices slows the audit process and may cause the auditor to make assumptions about missing data. Take time to organize documents clearly, create an index, and include written explanations to help the auditor understand your bookkeeping practices. additional information about out-of-state purchases, Maryland Use Taxes, or vendor filings, respond promptly to avoid delays. Ignoring these requests results in the state assessing tax without complete information and may lead to higher assessments than warranted. the state, including your cover letter, proof of submission, and all records provided. If tax
disputes arise later, you need evidence of what you offered and when you submitted it to support any corporate tax appeal.
Attorneys or tax attorneys to handle the audit, you must file Maryland Form 548 Power of
Attorney before the Comptroller will release tax information. Without a valid Form 548 on file, the hearing officer will not conduct the hearing with only your representative present.
Frequently Asked Questions
What if I cannot meet the response deadline?
Contact the auditor by the deadline date and request an extension in writing, providing a specific reason and proposing a new deadline. The state does not automatically grant extensions, but asking one shows a good-faith effort to comply and may prevent the Comptroller from proceeding without your input.
Can I appeal the audit results?
If the Comptroller issues a notice of assessment and you disagree, you have 30 days from the mailing date to file a written appeal with the Maryland Tax Court. The appeal must be filed within this deadline, or you lose your right to a hearing, and the assessment becomes final and non-appealable.
How long can the comptroller audit past returns?
Maryland Code 13-1102 establishes a four-year statute of limitations from the tax due date for sales tax assessments. However, there is no statute of limitations if there is proof of tax fraud or gross negligence, or if no return was filed through Maryland Business Express.
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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