Vermont Sales Tax Audit Readiness Checklist
Introduction
A Vermont sales tax audit occurs when the Vermont Department of Taxes reviews business records to confirm proper sales & use tax collection, reporting, and remittance under Vermont
Sales Tax rules and filing deadlines.
Audits affect small businesses, out-of-state sellers, and remote sellers with tax nexus, including economic nexus or SaaS presence, and preparation reduces tax liabilities, compliance risk, and administrative disruption.
What This Notice Means
A sales tax audit is a formal review of tax returns, sales records, exemption certificates, and transaction data to verify the correct application of sales tax rates, taxability determinations, and use tax reporting.
The audit evaluates whether Vermont Sales Tax, local option tax, and use tax were applied correctly to taxable goods, digital goods, cloud-based software, and Software-as-a-Service transactions.
Why the State Sent This Notice
The Vermont Department of Taxes issues audit notices to confirm Tax Compliance when filing patterns, transaction volumes, or nexus analysis indicate potential underreporting, exemption misuse, or sales-tax compliance inconsistencies.
Audits commonly arise from failure to file, nexus mapping for out-of-state sellers, SaaS taxability questions, or discrepancies between sales tax returns, income tax filings, and payment data.
What Happens If You Ignore This Notice
Ignoring an audit notice can result in estimated assessments, an expanded audit scope, penalties, and interest applied to unpaid sales and use tax liabilities.
Continued nonresponse may increase tax burden, delay resolution, and limit appeal options, especially when exemption documentation or transaction analysis is missing or incomplete.
Checklist: What to Do After Receiving This Notice
Step 1: Review the audit letter carefully
Identify the audit period, tax types reviewed, submission format, and deadlines listed by the
Department of Taxes. Record the auditor’s contact information and requested documentation categories.
Step 2: Create an audit file and timeline
Set up a centralized digital or physical file for all records, correspondence, and confirmations.
Maintain a running log of submissions, follow-up requests, and response dates.
Step 3: Confirm registration and filing status
Verify the active sales tax permit, filing frequency, and tax account identifiers. Confirm consistency across sales & use tax, income tax, and business filings.
Step 4: Gather filed tax returns
Collect all Vermont sales tax returns for the audit period, including amended filings. Retain supporting schedules and explanations used during tax return preparation.
Step 5: Compile sales and transaction records
Organize invoices, POS reports, transaction summaries, merchant processor statements, and bank deposits by reporting period. Ensure totals reconcile to reported gross and taxable sales.
Step 6: Prepare a reconciliation workbook
Reconcile POS sales, general ledger totals, sales tax returns, and bank deposits—clearly document adjustments such as refunds, discounts, timing differences, or voided transactions.
Step 7: Identify exempt sales categories
List each sales tax exemption applied during the audit period. Document the basis for exemption, including nonprofit organizations, agricultural machinery, or sales-for-resale transactions.
Step 8: Verify exemption certificates
Confirm that exemption certificates are properly completed, signed, and accepted in good faith.
Retain certificates for at least three years from the last covered transaction.
Step 9: Address missing exemption support
Identify exempt sales lacking documentation and prepare explanations or corrective filings.
Proactive review reduces exposure during transaction analysis.
Step 10: Review purchase and expense records
Assemble vendor invoices, inventory purchases, fixed assets, and expense documentation.
Identify taxable purchases subject to Vermont use tax.
Step 11: Evaluate use tax exposure
Review out-of-state vendors, cloud service providers, and software purchases. Confirm whether use tax was accrued on taxable items without Vermont sales tax charged.
Step 12: Follow submission instructions exactly
Submit records in the requested format via the portal, email, or mail. Include a clear index labeling documents by category and audit period.
Step 13: Maintain communication records
Log all communications with the auditor, including dates, requests, and responses. Keep copies of everything submitted and confirmation of receipt.
- 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 14: Review preliminary findings
Respond promptly to any Notice of Intent to Assess with additional documentation or explanation. A timely response preserves appeal rights and narrows the disputed issues.
Common Mistakes to Avoid
Missing deadlines or submitting disorganized records often expand the audit scope and increase assessed tax liabilities. Precise indexing and timely responses reduce audit friction and enforcement risk.
Misusing terms like 'reseller permits,' assuming certificate expiration, or ignoring the 90-day good-faith rule commonly results in the disallowance of the exemption and an additional tax burden.
Frequently Asked Questions
What is a Vermont sales tax audit?
A Vermont sales tax audit reviews sales, use tax, exemption certificates, and tax returns to confirm compliance with Vermont Sales Tax law and filing requirements.
Are exemption certificates required for exempt sales?
Yes, proper exemption certificates are required to support sales tax exemptions and must be accepted in good faith within the allowed timing rules.
Can SaaS and cloud software be audited?
Yes, audits increasingly review the Taxability of SaaS, cloud software, and digital goods, especially for out-of-state sellers and multi-state filings.
What happens if the assessment is disputed?
Taxpayers have 60 days to appeal an assessment issued by the Vermont Department of Taxes.
Appeal instructions are included with the assessment notice.
Closing
A Vermont sales tax audit is manageable with preparation, accurate records, and clear communication. Understanding audit expectations reduces risk and improves outcomes.
Organized documentation, correct exemption support, and timely responses allow businesses to resolve audits efficiently while maintaining long-term sales-tax compliance and reducing unnecessary tax liabilities.
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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