Sales tax audit defense line by line: proof for every sampled purchase, and the overpaid tax claimed back in the same audit
Assessments cut with proof for every sampled line, and overpaid tax claimed back.
See one case, screen by screen ↓Sales Tax Audit Defense is software for tax teams that answers a sales and use tax audit line by line. Seven agents match every line of the auditor's sample to its certificate, invoice or use-tax accrual, check each other, chase what is missing, argue the projection and find tax overpaid in the same years, while the sales tax manager decides what is conceded, challenged, claimed and sent.
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A state auditor rarely reads every purchase. They pull a sample — a few hundred lines from three or four years — mark every line they think is taxable and unsupported, and multiply the error across the whole population. In the sample case every unsupported dollar of tax in the sample stands for $12.58 of assessment. The defence is to find, for every line, the proof that the tax was not owed or was already paid: an exemption certificate with the asset in exempt use, an invoice that shows the tax, a use-tax accrual on a filed return. That proof sits in five places — the ERP, the invoice archive, the certificate store, the fixed-asset register and the filed returns — and a tax analyst pulls it together in a spreadsheet.
The clock is hard. In Texas a seller has 90 days from the auditor's written notice to deliver resale or exemption certificates, and certificates delivered after the period are not accepted. One-off repairs in a random sample get multiplied like routine purchases unless someone argues them out. And the same three years usually hold tax the company overpaid — vendors who charged tax on exempt manufacturing equipment, repair labour, utilities and packaging — which nobody has time to look for while the audit is open.
Estimated split for answering one auditor's sample of 190 purchases, by hand and with the solution. Waiting on vendors for missing documents does not go away.
Seven agents match each sampled line to its proof, check each other, chase what is missing, argue the projection and find overpaid tax; the tax manager decides.
The Texas Comptroller is auditing Kestrel & Vane Manufacturing Texas, LLC — plants in Pasadena and Waco — for sales and use tax from January 2022 to December 2024. The auditor sampled 190 untaxed purchases and projects $1,209,944.40. It is Thursday 15 October; the response is due on Friday 30 October. Here is the work, screen by screen, in the working solution.
Leon runs every US sales and use tax audit at Kestrel & Vane Group. His home screen says the agents matched the Texas sample, reverse-audited the same three years and drafted the reply. Across five open audits, auditors project $1,582,544; after the support the agents found, $443,779. The Texas response comes first, then the rest by date: a late vendor request, 22 matches below 95%, a California settlement call, the refund claim, the projection challenge and a new Ohio notice. The agents talk to him in the same place.
“The reply and six exhibits are drafted and cited. Nothing goes to the auditor until you approve it.”
On the left, the auditor's schedule: 190 sampled lines, $96,180.00 of tax claimed, factor 12.58. On the right, level with each line, our support — a certificate with the asset in exempt use, an invoice that shows the tax, or a use-tax accrual — with its source and a confidence. Filters count the lines: 148 supported, 22 to confirm, 9 being chased, 33 conceded, 2 one-off and challenged. The meter at the bottom shows the projected assessment at $286,069.20, the refund at $340,212.55 and the net position: $54,143.35 in our favour.
The Matcher agent searched the certificate store, the fixed-asset register, the invoice archive, the accrual workpapers and the filed returns for every sampled line, read-only. Replayed, the lines fill in batches and the projection falls from $1,209,944.40 while the refund rises. When the archive timed out three times on line 23, it did not guess: it handed the line to the Request agent.
The Matcher agent never marks a line supported without a cited document.
The Checker agent re-read each proposed document on its own: the certificate names the right company, was signed before the purchase and covers the item; the invoice charges tax on the item, not the freight; the accrual sits on a filed return for the period. It kept 148 and blocked 3 — line 88 (certificate expired 31 Dec 2022), line 117 (certificate from the sister distribution company) and line 140 (tax on freight only). The 22 matches below 95% went to Priya Raman to confirm.
The Checker agent can block a match; it can never accept one on its own.
Line 12 is a compressor package for the line 3 air system from Gulfline Compressor Services: $718.81 of tax on $8,712.85, $9,042.63 once projected. The side panel shows the auditor's note — no tax charged, no exemption documentation seen — next to our proof: Form 01-339 EX-4100, the Texas exemption certificate signed 22 Sep 2020, and fixed-asset record FA-100484, Waco plant, production line, in service 1 Mar 2022. The rule is 34 TAC §3.300(d)(2). Priya accepted it with reason A1.
The source passage is highlighted on the certificate and on the asset record.
Leon asks in plain words beside the ledger. The Checker agent answers with its sources: the certificate on file for Delmar Coatings was signed by Kestrel & Vane Distribution, Inc., not by the Texas manufacturing company. The Request agent has already asked Delmar for one from the right company, due Tue 27 Oct, inside the 5 Nov window. One click opens the line.
The Request agent planned every request backwards from Thu 5 Nov, when the certificate window closes: vendors get 10 working days, our people 5, and anything not back by 30 Oct goes in the response as “to follow”. Each request names one document and one line — invoice KPW-61548 for line 23 to Dale Okafor in Accounts Payable, a current certificate for line 88 to Lone Ridge Fabrication. REQ-07 from Brazos Packaging Co. is a day late; it reminded them and told Dale.
“I never concede a line.” — the Request agent proposes a concession with a reason code; Leon decides.
The Statistics agent rebuilt the auditor's projection — one stratum over $500, random selection, ratio projection — and found two lines that happen once: a turbine compressor rebuild after a bearing failure (line 64, $4,860 tax, projected $61,138.80) and a line 2 move in Waco (line 151, $3,420 tax, projected $43,023.60). Both sit in a general-ledger account with only these two postings in 36 months. Assessed at face value, the projection falls to $190,186.80. It asks Leon whether to raise it, and he can share it with Ruth Abernathy, the outside advisor who argues it at the exit conference.
The Statistics agent proposes; it never sends an argument to the auditor.
The Refund agent read the same three years for tax charged on exempt purchases: manufacturing equipment used in production ($171,406.20, 212 invoices), repair labour on exempt equipment ($84,215.35), electricity and gas used in manufacturing ($41,880.40, waiting on the predominant-use study) and packaging sold with the product ($21,438.15). With $21,272.45 of interest, $340,212.55 is offset in this audit. It also shows 318 invoices it would not claim — hand tools, maintenance and office supplies, and equipment rented for under a year — so nobody claims them by mistake.
Above $250,000, so Leon approves and Hannah Ostrowski, VP Tax, co-signs.
The Response agent drafted the reply from the decisions on the ledger, every sentence cited, with six exhibits: certificates with asset records, invoices showing Texas tax paid, use-tax accruals with the returns that report them, the 33 lines accepted as taxable, the 9 documents to follow and the overpayment schedule. Paragraph 4, the projection challenge, waits for his decision. Leon picks the reason — S1, send the response as drafted — and e-signs. Every step is on the audit trail.
“I approve the response to the auditor as Leon Hart, Sales Tax Manager — e-signature.”
The same Texas audit, seen by five of the people who carry it — what the weeks before a response looked like, and what they look like now.
Seven agents match each sampled line to its proof, check each other, chase what is missing, argue the projection and find overpaid tax; the tax manager decides.
Reads the audit notice, the questionnaire, the sampling notice and the auditor's sample schedule; sets up the audit with its dates and requests, ties the schedule totals to the auditor's cover note and starts the statutory clocks with their rule.
Finds the support for each sampled line — a certificate with the asset in exempt use, an invoice showing tax, or a use-tax accrual on a filed return — and cites the passage, with a confidence.
Re-reads every proposed match on its own before a person sees it: right company, signed before the purchase, covers the item; tax on the item, not freight; accrual on a filed return for the period.
Reverse-audits the same period for tax paid on exempt purchases, matches invoices to the asset register, work orders and meters, classifies them by rule, values interest and proposes an offset or a claim.
Rebuilds the auditor's projection from the schedule and the population, tests one-off items, strata and the sample frame, and writes the argument with the counter-calculation.
Turns missing support into named requests to the person or vendor who holds it, with due dates worked back from the statutory window; reminds at 2 working days and escalates at the due date.
Drafts the reply to the auditor and the exhibit binder from the decisions on the ledger, one fact per paragraph, every sentence cited.
Signs every response; the VP Tax co-signs above $250,000. The agents propose; a named person decides.
A conversation runs beside the ledger, the refund, the requests and the response. Ask in plain words or tell the agents what to do; they answer with their sources and offer the next step.
What should I do first?
Approve the Texas response: it carries the support for 148 lines and the offset of $340,212.55. Then the refund claim, because Hannah Ostrowski must co-sign it before 30 Oct.
Why is line 117 not supported?
The certificate on file for Delmar Coatings was signed by Kestrel & Vane Distribution, Inc., not by the Texas manufacturing company. The Request agent asked Delmar for one from the right company, due Tue 27 Oct, inside the 5 Nov window.
What happens if REQ-07 never arrives?
Line 153 stays unsupported: $229.27 of tax, $2,884.22 projected. It goes in the response as “to follow”; if nothing comes by Thu 5 Nov the certificate window is closed, and I will propose you concede it with reason C2. You decide; I never concede a line.
Why is electricity only 88% sure?
Electricity used in manufacturing is exempt only when production is the predominant use. The draft study for the Pasadena meters shows 71% production use, but the engineer signs it on Thu 22 Oct. Until then you can claim the other three categories.
13 screens from the working solution, on its sample data. Pick one to see it large.
What the agents propose, what a person must confirm and who signs are settings — versioned, and live only once the VP Tax approves them.
| Setting | Default | Choose from |
|---|---|---|
| Agents propose a match at | 90% or more | 80% to 99% |
| A person confirms below | 95% — 22 Texas matches | 85% to 100%, showing how many lines would need confirming |
| One-off test | Line tax over 5× the sample median, vendor not recurring | 2× to 10× the sample median |
| Smallest refund invoice claimed | $25 | $0 to $100, in $5 steps |
| Sales Tax Manager signs up to | $250,000; above, the VP Tax co-signs | $50,000 to $500,000, in $25,000 steps |
| Order of support | Certificate with the asset in exempt use → invoice with tax charged on the item → use-tax accrual on a filed return | A versioned rule, edited as a draft |
| Certificate holds when | It names the audited company, is signed before the purchase (or delivered inside 90 days of the auditor's notice), and covers the item | A versioned rule, edited as a draft |
| Never claimed | Hand tools, maintenance and office supplies, equipment rented for under a year | A versioned rule, edited as a draft |
Every figure is labelled: a target the solution is built to, an estimate, a typical published result, or a proven one.
“demo” = seen in the working solution, on its sample data · “target” = the design goal, measured in the live solution · “estimated” = our estimate · “typical” = published rules (34 Texas Administrative Code §3.282(k) — 90 days from the auditor's written notice to deliver resale or exemption certificates, not accepted after; §3.300 on manufacturing exemptions). People, companies, vendors, invoices, certificates and amounts named on this page are fictional — characters and sample data in the working solution. The Texas Comptroller of Public Accounts is named only as the auditing agency; the audit and its schedules are invented.
Sales Tax Audit Defense is software for tax teams that answers a sales and use tax audit line by line. Seven agents match every line of the auditor's sample to its certificate, invoice or use-tax accrual, check each other, chase what is missing, argue the projection and find tax overpaid in the same years, while the sales tax manager decides what is conceded, challenged, claimed and sent.
The Matcher agent searches the certificate store, the fixed-asset register, the invoice archive, the accrual workpapers and the filed returns, and proposes the strongest support with a citation and a confidence. A certificate counts only with the asset in exempt use. The Checker agent re-reads every match before a person sees it, and blocks the weak ones with the reason.
Yes. The Refund agent reads every invoice with tax charged in the audit period and finds tax paid on purchases the state exempts — in the sample case manufacturing equipment, repair labour, utilities and packaging. It values interest and proposes an offset in the audit or a separate claim, shows what it would not claim, and never files anything.
The Statistics agent rebuilds the projection from the auditor's schedule and the population, tests for one-off items, strata and the sample frame, and writes the argument with a counter-calculation. It proposes; the sales tax manager decides whether to raise it, and can share it with the outside advisor first.
The Intake agent starts each statutory clock from the auditor's notice with its rule — in Texas, 90 days to deliver certificates. The Request agent dates every request back from that deadline, reminds at 2 working days and escalates to the sales tax manager at the due date; the VP Tax is told 10 days before a window closes.
Yes. The agents are read-only on every system and never send anything to an auditor or a vendor on their own. The sales tax manager accepts, concedes, challenges, claims and signs the response with a reason code and an e-signature, and the VP Tax co-signs claims and settlements above the manager's limit.
Yes. The match and confirmation thresholds, the one-off test, the smallest refund invoice, the signing limits, the order of support and the categories never claimed are settings. Each change is versioned and stays a draft until the VP Tax approves it.
The Agentic Solution Engine builds and deploys it from your requirements and documents — your entities and registrations, your systems, your state rules and a past audit's sample schedule — and it goes live once every quality gate has passed. We will walk you through it on one of your own audits first.
Every country tested, every field traced, the return ready months before the deadline.
1-min demoE-Invoicing ComplianceEvery invoice checked before it leaves, and every rejection fixed the same day.
1-min demoTransfer Pricing DocumentationEvery margin tested before the year closes, and every file ready inside 30 days.
1-min demoWe'll run Sales Tax Audit Defense on the sample schedule from one of your own past audits.