Facing a New Jersey Sales Tax audit is a high-stakes event, especially for cash-intensive businesses like restaurants, bars, and retail stores. The NJ Division of Taxation often uses aggressive "markup method" assessments to estimate sales when they deem records insufficient—a process that frequently leads to wildly inflated tax bills.
Our Attorney-CPA Advantage provides a dual-layered defense that typical tax firms cannot offer. We combine Attorney-Led Strategy to manage all communications and prevent the "scope creep" of an audit with CPA-Precision Financials to reconstruct accurate records and identify offsets state agents often ignore.
From filing protests within the strict 90-day deadline to representing you in formal appeals or the NJ Tax Court, we fight to ensure the government follows the rules while we work to reduce or eliminate your proposed tax, penalties, and interest.
Thomas F. DiLullo, Esq., CPA
NJ Sales Tax Audit FAQ
Why was my business selected for a New Jersey Sales Tax audit?
The NJ Division of Taxation selects businesses based on several factors, including industry-specific "red flags," discrepancies between reported sales and bank deposits, or random selection. Cash-intensive businesses like restaurants, bars, and liquor stores are high-priority targets because state auditors often assume records may be incomplete.
What is the "Markup Method" and why is it dangerous?
If an auditor deems your records insufficient, they will use an indirect assessment known as the markup method. They estimate your total sales by applying a standard industry profit margin to your inventory purchases. This often results in wildly inflated tax bills because it ignores waste, theft, "comped" items, and actual price fluctuations. Our Attorney-CPA defense works to reconstruct your actual financials to disprove these aggressive estimates.
How long do I have to challenge a NJ Sales Tax assessment?
You have a strict 90-day deadline from the date on your Notice of Assessment to file a formal protest. Missing this window can result in the loss of your right to appeal, making the tax debt final and subject to aggressive collection actions like bank levies or liens.
What records will the NJ auditor ask to see?
Typically, auditors request the last four years of:
Federal and NJ Income Tax returns.
Daily sales reports and Z-tapes.
Purchase invoices and bank statements.
Exemption certificates (Form ST-3 or ST-4) for any non-taxed sales.
General ledgers and payroll records.
Can I represent myself in a sales tax audit?
While you can represent yourself, it is rarely advisable. Auditors are trained to find "scope creep"—expanding a simple sales tax review into a full-blown corporate or payroll tax audit. Having an Attorney-CPA allows you to stay at arm's length, ensuring that only necessary information is disclosed and that legal privileges are maintained.
What if I don't have all the records the auditor is asking for?
Missing records are not an automatic defeat. We specialize in financial reconstruction, using secondary evidence like vendor reports and industry-specific data to build a "truth-based" defense that prevents the state from using arbitrary markup percentages.