Missouri DOR Business Tax Return Audits
How to Prepare and What to Expect With MO DOR Audits
The Missouri Department of Revenue has the right to audit any tax returns filed with the agency – and if you operate a business in this state, you need to be ready. To help you out, this post outlines what to expect if your business tax returns are selected for an audit.
Need help now? Use TaxCure to find a licensed tax professional who can provide audit representation in Missouri.
Key takeaways
- The MO DOR may audit sales and use tax returns, corporate income tax returns, or other other returns filed by your business.
- During an audit, you will need to provide records that back up the numbers reported on your tax return(s).
- If the auditor disagrees with your records, they may adjust your return and assess tax against you.
- You have appeal rights after an audit, but they're subject to strict rules and deadlines.
- If you incur a tax liability due to an audit, you may be able to set up payments with the DOR.
Types of Missouri business taxes subject to audit
The DOR may select the following business returns for audit:
- Corporate income tax returns
- Partnership or S-Corp returns
- Withholding returns (Missouri payroll tax)
- Sales and use tax returns
Any other taxes administered by the Department, including marijuana tax, tire and lead battery fees, cigarette tax, and motor fuel tax.
Audit triggers: How the MO DOR selects returns to audit
The DOR selects some returns for audit randomly, but often the Department takes a much more strategic approach to identify potentially problematic returns:
- Cross-matching – the DOR compares information on your returns to information submitted on other returns. For instance, revenue reported on a business income tax return to taxable sales reported on a sales tax return.
- Unusual discrepancies – unusual discrepancies between your reported information and industry norms can also lead to an audit. For instance, if the ratio between your business expenses and revenue is significantly out of line for your industry, your corporate income tax return may get flagged for an audit.
- High-risk industries – the DOR often puts additional scrutiny on returns filed by businesses in cash-heavy industries such as restaurants or car dealerships. They also focus on industries where sales tax can be complicated, like car repair businesses that charge sales tax on parts but not labor.
What to expect during a Missouri business audit
The Department will mail you an audit notice, letting you know that you've been selected for a state audit and outlining the type and scope of the audit. The Department may handle your audit through the mail (correspondence audit), or they may request to meet with you at your place of business (field audit) or in the auditor's office (desk audit). Most business auditors will insist on coming to your place of business.
The auditor will also let you know which returns, from which tax periods, are under audit. Typically, the Department only goes back up to three years, but if they discover fraud or significant income understatementse on those returns, they may go back further and look at older returns.
The documents you need to provide vary based on the return being audited, but may include:
- POS reports
- Invoices
- Bank statements
- Payroll records
Often, the auditor may want to see multiple records. For instance, if the MO DOR is auditing your withholding tax returns, they may want to see time sheets, payroll records, and bank statements that show employees' payments being taken out of your bank account.
After you provide the documents, the auditor will review them, and in many cases, they will ask for more documents. In most cases, state auditors will even come to your place of business and observe operations. That gives them a sense of whether your operations support the information reported in your returns – for instance, if they're auditing sales tax returns, they may want to see that you ring up sales, how you handle discounts, and what you do with cash payments.
Finally, once all the details are in, the auditor will either accept your return as filed or make changes. Most changes lead to a tax liability, which will also include penalties and interest backdated to the filing deadline. A small number of audits may lead to a reduced tax liability, but that's rare.
If you agree with the changes, you can pay the tax due and put the audit behind you. If not, you have appeal rights. The appeal process can be confusing, and the deadlines are strict. Even if you've gone this far without representation, it's time to contact a tax professional now.
Typically, you appeal through the Missouri Administrative Hearing Commission (AHC). During the appeal, you can present new information and explain why you disagree with the auditor's changes. If you miss the appeal deadline, you may be able to pay under protest and then seek a refund.
Nexus concerns during Missouri audits
Auditors may also look for businesses with nexus that aren't filing the right returns in the state. For instance, if your corporation has a physical presence in the state – for instance, storing inventory or providing services along with product deliveries – the auditor may look into whether you have corporate nexus and need to file corporate returns.
More commonly, however, nexus concerns are focused on sales tax filings. If you have a physical presence in the state, you have nexus and must register for a sales tax permit and collect sales tax. However, if you're not physically based in the state, you may have economic nexus if your sales exceed $100,000 over the last 12 months.
The state expects you to look at your sales at the end of every quarter, add up Missouri sales for the previous 12-month period, and if you're over the threshold, start collecting and paying Missouri vendor use tax within three months. Note that most states refer to sales tax collected by remote sellers as sales tax but Missouri calls it vendor's use tax.
If you're a marketplace seller, the marketplace facilitator will collect and remit vendor's use tax on your sales, but if you have sales outside the marketplace, you must consider your total sales when determining your nexus. Say for example, you have $20,000 in Missouri sales through the marketplace but you have $80,000 through your personal business website. That triggers nexus.
To spot businesses that have nexus in the state but aren't paying sales tax, the MO DOR may:
- Compare businesses registered to pay Missouri payroll tax to businesses registered for sales tax accounts.
- Check state sales tax registrations against import/customs records.
- Cross-reference payments from marketplace facilitators to sales tax registrations.
The DOR has many ways to spot noncomliant business registrations and unfiled returns. If you're supposed to be paying tax in Missouri but haven't registered or filed, consider looking into the state's Voluntary Disclosure Program – but act quickly, you can only apply if you reach out to the state before an auditor contacts you.
How to prepare for a MO business tax audit
So, what should you do if you're selected for an audit. To prepare, keep these tips in mind:
- Review the notice carefully – Look for documents required, deadlines and details about the audit.
- Gather documents – get together all of the documents listed in the audit notice or any other documents that substantiate the details reported on your return.
- Understand sampling – if you have a high volume of sales, auditors may not want to see all your records; instead, they'll want to see a sample.
- Get ready for unusual requests – if an auditor requests something that seems out of scope, ask to talk to their manager or reach out to an MO tax professional. However, in some cases, "unusual" documents are the norm – for example, an auditor may want sales details presented in a spreadsheet even though you only use the printed sales report from your POS documents.
- Work with the auditor – you must respond to the auditor promptly if you want the audit to go as smoothly as possible.
- Don't overshare – although you can't hold back requested documents, you should also avoid sharing more than necessary.
- Hire audit representation – the best way to get through an audit is with an experienced professional by your side. They'll handle the back and forth with the auditor, help when it's hard to find records, reconstruct records if necessary, make sure your rights are protected, and argue for the best outcome possible in your case.
When you contact a professional, they'll let you know how they can help with the audit. You can bring on a pro at any point but the sooner, the better.
How to pay the tax due after an audit
If you incur tax and penalties due to the audit and you can't pay in full, consider:
- Payment plan – the DOR will generally let you make payments for up to two years, but you may be able to get longer if you provide financial details. If you wait too long to set up payments, the DOR may only give you up to 12 months to make payments and may require a 25% downpayment.
- Offer in compromise – generally, you cannot get an offer in compromise on Missouri sales tax or withholding tax that was taken from your employees' paychecks, but you may be able to get an offer for corporate income tax in some situations.
You may also want to request penalty relief. If you can't afford to pay anything, contact the state about hardship, but keep in mind that's not easy to establish if your business is still operating. Don't igore your tax liability – otherwise, you'll face tax liens, wage garnishments, and personal liability for the unpaid sales tax.
FAQs about Missouri business tax audits
How long do Missouri tax audits last?
Audit timelines vary. The DOR says auditors usually spend a week looking at sales tax records for medium-sized companies and one day examining corporate returns, but big businesses may require longer audit times. Also, the length of the audit can vary based on whether you appeal.
Where do most Missouri audits take place?
Most auditors come to your place of business. However, some audits are conducted electronically (through email or uploading documents into the state's tax platform) or at the auditor's office.
How do I find audit help in Missouri?
Your tax preparer may be able to represent you in an audit – but only work with them if they have audit experience. Otherwise, you can use TaxCure to search for an experienced tax professional. Start your search by indicating that you need help with the MO DOR. Then, use the filters to narrow down the options so you only see pros with audit experience.
Get help with Missouri tax audits
Don't wait. If your business is being audited, you need to protect yourself by working with a tax pro. To get assistance, start your search on TaxCure now. Look at tax pros' profiles, read their reviews, and then reach out for a consultation to make sure you found the right fit for your needs. You can also explore these links to see a list of Missouri tax pros: