- Use tax: A use tax is nearly the same thing as a sales tax. It's a tax on purchases made outside one's state of residence for taxable items that will be used, stored or consumed in one's state of residence and on which no tax was collected in the state of purchase.
- Accrue: To add to, or accumulate. In a sales and use tax context, “accrue” means that a business needs to accumulate money to pay use tax on its next monthly use tax return.
- Schedule: An "audit schedule" is the working papers prepared by the auditor. They hold the evidence of audit work carried out and the conclusions reached by the auditor or audit team based on the audit work carried out.
LECTURE SCRIPT (you can also turn on close captioning by clicking the CC button):
Let’s take a look at audits in general and provide you with a high-level understanding of what an audit is about.
The word audit was derived from the Latin word "auditus" meaning the act of hearing or listening.
In a historical sense, the act of hearing is what an individual would want from an auditor; a person to listen and communicate with.
In modern times, a sales and use tax audit is where a state agency sends a representative to a company to ensure that the company correctly paid sales and use tax.
There are many types of audits and groups that audit companies today, and these will be discussed in more detail in later lectures.
An audit occurs when a state agency inspects the books and records of a company specifically evaluating the correctness of sales tax paid on invoices and use tax accrued on invoices.
Sales tax paid on invoices can occur in two areas:
1. Sales tax paid on invoices for company purchases; and
2. Sales tax charged and collected on invoices for company sales.
Use tax is evaluated by inspecting whether the company accrues tax on taxable invoices where no sales tax was charged.
These invoices are isolated to company purchases.
At the end of this review the auditor will draft a schedule of sales tax that should have been paid or charged and use tax that should have been accrued and paid.
This schedule is usually presented to the company before it is finalized and submitted to the state agency to create an assessment or "tax bill."