Nebraska Sales Tax Audit Readiness Checklist

Nebraska Sales Tax Audit Readiness Checklist

Introduction

Sales tax compliance in Nebraska requires businesses to collect, report, and remit sales taxes on taxable transactions. The Nebraska Department of Revenue monitors sales tax filings to ensure accuracy and timeliness.

If the state identifies discrepancies or missing documentation, an audit or compliance notice may follow. Understanding what triggers a Nebraska sales tax audit and how to prepare reduces confusion and helps ensure your records are complete and accurate.

Sales tax audits are part of routine state tax administration and do not automatically indicate wrongdoing. Responding promptly and thoroughly to audit requests is critical. Delayed or incomplete responses can result in additional penalties, interest assessments, and enforcement action.

What a Sales Tax Audit Means

A Nebraska sales tax audit is a formal review by the Nebraska Department of Revenue examining your sales tax records, filings, and transactions. State auditors review your books, receipts, invoices, tax returns, and payment history to confirm that sales tax was calculated, collected, and reported correctly.

An audit notice informs you that the state has selected your business for examination and specifies the period under review. This is an administrative process, not a penalty or accusation.

Audits typically cover the most recent 3 years. Still, the lookback period extends to 6 years if no tax return was filed, a false or fraudulent return was filed with intent to evade, or if omissions exceed 25% of the reported tax. Nebraska may conduct the audit by mail, phone, or at your business location, depending on complexity and the amount of documentation involved.

Why Nebraska Conducts Audits

Common triggers include unusual patterns on tax filings, significant changes in reported sales or tax amounts from year to year, customer complaints, reports from other agencies, or random selection as part of routine compliance monitoring. Nebraska may also audit if there are

discrepancies between returns filed with the Internal Revenue Service and Nebraska sales tax reports, or if sales volumes appear inconsistent with the type of business. Businesses claiming high volumes of exempt sales or exemptions under Sales and Use Tax regulations also attract examination by the Nebraska Department of Revenue.

Consequences of Ignoring an Audit Notice

Failing to respond to an audit notice or to state requests for information results in escalation.

The Nebraska Department of Revenue may assess sales tax, penalties, and interest based on available information without your input or documentation.

If records cannot be provided, the Department may estimate your tax liability using alternative methods, which often result in higher assessments than those in your actual filings. Continued non-response may lead to formal collection action, including liens on business assets or bank account levies.

Willful failure to collect or account for use tax or sales tax, or willfully attempting to evade tax obligations under the Internal Revenue Code and Nebraska tax laws, is a Class IV felony under

Nebraska law. Penalties and interest accumulate over time, making the total liability significantly larger.

What an Audit Does Not Mean

An audit notice does not mean you have committed fraud or that the Nebraska DOR has determined you owe money. It is a request for documentation and clarification, not a final assessment or penalty.

The audit does not automatically result in additional tax owed; the state may confirm your filings were accurate, require minor adjustments, or identify overpayments. An audit does not mean your sales tax permits will be suspended or your business will be closed.

Preparing Your Documentation

Organize all sales tax returns filed for the audit period and collect supporting documentation, including invoices, receipts, and sales transaction records. Gather bank statements and payment records showing tax remittances at the applicable tax rate. Locate exemption certificates for customers who purchased tax-free items and identify any adjustments, credits, or amendments filed during the audit period.

Compare reported sales figures to your accounting records and check that taxable sales and non-taxable sales are correctly separated. Confirm that all tax remittances match the amounts reported on returns and note any periods with unusual increases or decreases in sales transactions. Review your use tax obligations for out-of-state purchases and verify compliance with current tax laws.

Create a chronological list of all returns filed during the audit period and document the dates and amounts of each tax payment.

Prepare a summary of your business operations during

the audit period, noting any business changes, such as ownership transfers, location changes, or product line modifications.

Gather all Form 13 Nebraska Resale or Exempt Sale

Certificate for Sales Tax Exemption documents and organize these certificates by customer name. Review your records for digital goods sales, as these are subject to specific tax rate requirements under Nebraska sales tax law.

Responding to the Audit

Contact the auditor listed in the notice to acknowledge receipt and confirm the deadline for providing records. Ask whether records can be mailed or emailed, or whether they must be reviewed on-site. Clarify which specific records are priority items and confirm the best method for communicating during the audit. Send records in an organized, chronological format with a cover letter and include a list of the documents being submitted.

Document all phone calls with date, time, and topics discussed. Note any additional information requests from the state and set reminders for response deadlines. Answer all follow-up questions from the auditor clearly and thoroughly.

Provide any additional documentation requested within stated timeframes and clarify any discrepancies or unusual items without defensiveness. If you completed Form 20 to register your business, ensure you have copies available, as the auditor may request verification of your initial registration. Verify that all resale or exemption certificate documents are complete and up to date."

Understanding Audit Results and Appeals

After you submit your documentation, the auditor reviews the materials and may request additional information or clarification. Reviews typically take several weeks to several months, depending on the audit's complexity and scope. Nebraska Department of Revenue auditors may

examine your records for digital goods transactions and verify that the correct tax rate was applied to these sales.

Once the auditor completes the examination, the Department issues a formal audit report. This report explains the auditor's findings, states whether adjustments are required, and specifies any additional tax, penalties, or interest owed.

Reports will address both sales and use tax obligations and compliance with Sales and Use Tax regulations. If you disagree with the auditor's conclusions, you have the right to provide additional documentation or explanation before the final report is issued. After the report is issued, you have sixty days to file a Petition for Redetermination.

Record Retention and Professional Representation

Nebraska sales tax law requires businesses to keep records for at least 3 years from the date the records are made. Records must be retained for a minimum of three years after the tax return is filed, or while any refund claim or petition for redetermination of a deficiency determination is pending, unless the Nebraska Department of Revenue authorizes their destruction in writing at an earlier date. These records should include all Form 13 documents,