If you are in business for any length of time, you can expect a visit from a Department of Revenue auditor. This is no cause for alarm; taxpayers are audited regularly, and you shouldn't feel that your account is under suspicion for any tax liability. In pursuant to South Dakota law 10-59-5, the South Dakota Department of Revenue reserves the right to conduct audits when the reported sales, use and/or excise tax varies significantly from what is expected. Our parameters are based on industry, location, past reporting and other factors. If you are currently involved with an audit, please contact your local auditor for more detailed information.
In accordance with Administrative Rule 64:06:01:35, if selected for examination, business records supporting your tax liability will be requested by the auditor and must be provided within 60 days of the audit commencement date. All businesses should maintain these records for at least the current month and the previous 36 months. Records that should be retained include:
- Sales and billing invoices
- General and subsidiary ledgers
- Cash register tapes - journal tapes, detail tapes, Z tapes, guest checks
- Bank deposit slips and statements
- Sales and/or cash receipts journal
- Resale certificates
- Proof of exemption (exemption certificate or proof of government funds)
- Bills of lading or other proof of delivery
- Credit memorandums
- Bad debts as claimed on federal income tax returns
- Purchase Invoices
- Cash Disbursement Journal or Check Register
- Fixed Assets Schedule
- Inventory withdrawal records
- Depreciation Schedules
What To Do if Your Business is Selected
If your business is selected for an examination, you will receive a Notice of Intent to Audit at least 30 days before the commencement of the audit. Once the notice is received, all records should be procured for the return periods on the notice of intent. Unlicensed businesses and businesses convicted of tax fraud are not limited to a three-year look back and may be audited from the start of their business forward. Anyone who fails or refuses to exhibit the records and books required to the Department of Revenue for examination could be found guilty of a Class 1 misdemeanor.
Appealing an Audit
If you believe your assessment is based on a mistake of fact or an error of law, a hearing may be requested in writing 60 days from the date of the Certificate of Assessment. See the Audit Tax Facts (PDF) to learn more.
Have a Question About Your Audit?
If you have received a notice of intent, are currently involved with an audit and have a question please contact your auditor or their supervisor.
|Office||Office Phone||Audit Supervisor|
|Aberdeen||(605) 626-2218||Brian Hertel|
|Mitchell||(605) 995-8080||Doug Nelson|
|Pierre||(605) 773-3311||Doug Nelson (Mitchell Office)|
|Rapid City||(605) 394-2332||Rob Sheffield|
|Sioux Falls||(605) 367-5800||Dan Webster|
|Watertown||(605) 882-5188||Brian Hertel (Aberdeen Office)|
|Yankton||(605) 668-2939||Doug Nelson (Mitchell Office)|
Interest & Penalty
Interest is assessed anytime the tax obligation is under paid. It is assessed at a rate of 1% per month or partial month, the tax obligation remains outstanding. If the failure to pay the tax was with the intent to avoid or delay the payment of tax, a rate of 1.5% per month will be assessed. A penalty of 10% of the tax will be assessed on errors related to any return that was not filed with 30 days of the return due date.
Common Errors Found in Audits
Based on our experience, the following is a breakdown of the most common errors found during audits.
Common Sales Tax Errors
- Under-reporting of sales tax due to poor record keeping.
- Exempting sales to taxable customers such as churches and 501(c)3 entities.
- Municipal tax (PDF) and Municipal Gross Receipts Tax (MGRT) reporting errors.
- Not having valid exemption certificates (PDF) on file.
- Sales tax charged on construction services subject to excise tax.
Common Use Tax Errors
- Not remitting use tax (PDF) on untaxed goods and services purchased/used.
- Not remitting use tax on items taken from inventory and used personally or in your business.
- Not remitting use tax on owner-furnished materials (OFM).
- Not remitting use tax on equipment brought in from out of state.
- Use tax overpaid in error on purchases of services subject to excise tax.
- Not retaining invoices for purchases made on a credit card
Common Excise Tax Errors
- Not remitting excise tax on owner-furnished materials (OFM).
- Not reporting excise tax on work performed for Local, State or Federal Gov’t agencies.
- Excise tax charged on construction services subject to sales tax.
- Not including the excise tax invoiced and collected in reported gross receipts which you can learn more about in the Contractor's Excise Tax Guide (PDF).
- Under-reporting of excise tax due to poor record keeping. See the following Contractor's Excise Tax Facts:
- Agriculture Machinery, Attachment Units, and Irrigation Equipment (07/17) (PDF)
- Audits (07/15) (PDF)
- Communications Equipment - Installation & Repair (06/16) (PDF)
- County Governments (08/18) (PDF)
- Flooring (06/16) (PDF)
- Gravel (11/16) (PDF)
- Investigative Services Bureau (02/17) (PDF)
- Landscaping & Lawn Care (06/16) (PDF)
- License Requirements for Sales, Use & Contractor's Excise Tax (01/19) (PDF)
- Manufactured and Modular Homes (05/19) (PDF)
- Metal Mining (06/16) (PDF)
- Municipalities (06/16) (PDF)
- Oil & Gas Field Services (06/16) (PDF)
- Qualified Utilities (06/16) (PDF)
- Realty Improvements for Exempt Entities (07/16) (PDF)
- Self Contractors (07/13) (PDF)
- South Dakota's Tax Refund And Tax Delay Payment Programs (PDF)
- Speculative Builders and the $100,000 Rule (06/16) (PDF)
- State Water Resources Management Systems (06/16) (PDF)
- Use Tax, Businesses (05/19) (PDF)
- Use Tax, Individuals (05/19) (PDF)
Common Fuel Tax Errors
- Errors in reporting due to poor record keeping.
- Not keeping the nine required items on trip sheets. (IFTA/IRP)
- Not using bill of lading as main source document. (Ex. should not substitute invoice, etc.) (Supplier)
- Not including non-taxable exports on returns. (Importer/Exporter/Supplier)
- Incorrect reporting of product authorizations – a product authorization must occur before the rack and bill of lading must reflect the new supplier.