SALT Report 3022 – The Wisconsin Department of Revenue updated a publication that discusses statistical sampling in sales and use tax audits. Statistical sampling is a method generally used in field audits when it is not efficient to review 100% of the taxpayer’s records or to use a non-statistical method.
In most cases, if a prior audit included a statistical sample, then any subsequent audits will likely include a statistical sample. Otherwise, the auditor will consider the following criteria when determining whether to use this method.
- Volume of records
- Nature and volume of nontaxable sales
- Significant changes in business operations that occurred during the audit period
- The media and filing method used for source documents
- Are the sales or purchase records in an electronic-readable format?
- What type of software is used for billings and payments? Has the software changed during the audit period?
In cases where a statistical sample is appropriate, the auditor will request that a sample be drawn from the taxpayer’s computer readable records. Upon receipt of the information, the Computer Audit Specialist and the auditor will pre-screen the data to identify types of transactions that do not need to be examined. After that, the records will be reviewed and the auditor will develop schedules to compute the amount of tax, or refund due.
The publication also provides additional guidance regarding the specific types of data and information that will be requested by the auditor; the steps used to generate a statistical sample; how statistical sample results are calculated and evaluated and how they can be projected forward to subsequent periods; the appeals process; refunds; and common questions and issues related to statistical sampling.
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