Small Employer Access to Statistical Sampling in Sales Tax Audits

(2017 Wisconsin Act 59)

State law authorizes the Wisconsin Department of Revenue (DOR) to use statistical sampling in sales and use tax audits. This auditing practice is generally used in field audits when it is not efficient to review all the records or to use one of the non-statistical methods.

In a statistical sample, the sample is randomly selected and probability theory is used to evaluate the sample results. When sampling is used, both the DOR and the taxpayer can save time and resources. An example cited by DOR is illustrative:

Company A has approximately 10,000 purchase invoices for each year filed alphabetically by vendor name. If the audit scope includes four years, a block sample based on alphabetical vendor name would require the auditor to review 10,000 records (approximately one-fourth for each year). However, a statistical sample covering that same scope might require the auditor to review 1,000 or fewer invoices.

The requirements imposed by the DOR on taxpayers seeking to utilize statistical sampling – detailed charts of accounts in electronic format; trial balances in electronic format; and electronic detail records of sales and/or purchases, including coding information – are such that only very large companies can access this cost-saving auditing process.

2017 Wisconsin Act 59 extends this option to small employers by requiring the DOR to establish criteria for using statistical sampling methods during sales and use tax field audits. The criteria will specify:

  • that any person with less than $10,000,000 in annual sales during any year at issue during a field audit may choose to have the audit conducted using statistical sampling;
  • the number of transactions necessary to qualify for statistical sampling; and
  • the maximum sample size.