Audit Program

The Commission serves as an operating arm of member states through the Joint Audit Program. Member states pool their resources to select candidates for corporate income, sales and use, franchise, and gross receipts tax audits. The Commission's audit staff performs these audits as though they were part of a state's own audit staff, forwarding their findings and recommendations to the member states for assessment and collection at the completion of the audit.

States maintain control of the program through selection of the audit candidates -- they make the decision as to whether or not to participate in a given audit and how to act upon the audit results. The Audit Committee and its oversight subcommittee, consisting of the audit and compliance directors of member states tax agencies, guide the program and ensure that it is responsive to member state needs.

Over the last 5 years the MTC Audit program completed the equivalent of 1,647 state income and sales tax audits. The average hours to complete an individual state audit over this period was 59. This is a strong indication that a joint audit is very cost effective.

For a more detailed description of the audit selection process, please see the following information: 


Benefits of the Program

A single MTC audit takes the place of separate and duplicative audits by member states, and provides obvious economies of scale to the states. At the same time, it relieves the taxpayer of the burden of multiple ongoing audits. A joint audit is also a good way to achieve uniformity among states with similar laws and regulations in the treatment of income or transactions reviewed in a particular audit.


Goals of the Program

The Joint Audit Program helps states learn of any inconsistent reporting to different states by multistate taxpayers. In cases in which settlements of disputes are negotiated, the states' position is improved by their joining together; by the same token, corporate taxpayers sometimes find it less burdensome to negotiate with one representative than with numerous individual state tax agencies.

States also use the program as a tool for adapting existing laws to new circumstances and industry practices that arise continuously in a dynamic market economy. By working together through the Commission, several states can simultaneously gain experience in addressing these new circumstances and can apply that experience in their individual state audit programs.

 


Audit Selection Process

 

PRIMARY PROCESS:

  • July:  Audit Director Sends Out Audit Nomination Forms
  • September:   States Return Audit Nomination Candidates
  • November:  Audit Director Distributes Summarization of Audit Candidates
  • February:  States Supply Information on All Audit Candidates
  • March:  States Select MTC Audit Inventory by a Voting Process

 

SECONDARY PROCESS:

  •   MTC National Nexus Program Refers Audits to MTC Audit Committee.
  •   Taxpayers May Request an MTC Joint Audit Through the MTC Audit Committee.

 


Income Tax Joint Audit Process

 

  •   MTC Audit Director assigns an audit to an MTC Auditor from audit inventory. 
  •   States decide whether to participate in the audit and return signed audit authorization. 
  •   Auditor contacts the taxpayer and arranges an audit appointment.
  •   Auditor conducts field audit work at taxpayer’s location.
  •   Auditor completes field work and supplies taxpayer with audit schedules.
  •   Auditor discusses any proposed audit adjustments with taxpayer.
  •   Taxpayer reviews proposed audit adjustment.
  •   Taxpayer may request meeting with MTC Audit Supervisor, MTC Audit Director, or MTC Audit Committee at any point during the audit process.
  •   Audit supervisor reviews audit schedules and report.
  •   Individual state audit sent to corresponding state in the audit as a recommended audit finding.
  •   Each state reviews its own completed audits.
  •   Each state determines action to take from audit (accept or change).
  •   Each state sends out Notice of Assessment (refund) to taxpayers.
  •   Taxpayers may protest the audit results directly to states or request Multistate Alternative Dispute Resolution (Project developed jointly by states and COST).

 


Sales Tax Joint Audit Process

  •   MTC Audit Director assigns an audit to an MTC Auditor from audit inventory. 
  •   States decide whether to participate in the audit and return signed audit authorization. 
  •   Auditor contacts the taxpayer and arranges an audit appointment.
  •   Auditor conducts field audit work at taxpayer’s location.
  •   Auditor completes field work and supplies taxpayer with audit schedules.
  •   Auditor discusses any proposed audit adjustments with taxpayer.
  •   Taxpayer reviews proposed audit adjustment.
  •   Taxpayer may request meeting with MTC Audit Supervisor, MTC Audit Director, or MTC  Audit Committee at any point during the audit process.
  •   Audit supervisor reviews audit schedules and report.
  •   Individual state audit sent to corresponding state in the audit as a recommended audit finding.
  •   Each state reviews its own completed audits.
  •   Each state determines action to take from audit (accept or change).
  •   Each state sends out Notice of Assessment (refund) to taxpayers.
  •   Taxpayers may protest the audit results directly to states or request Multistate Alternative Dispute Resolution (project developed jointly by states and COST). 
  •   Computer audit specialist accompanies the auditor on first field audit trip.
  •   Request electronic records from the taxpayer.
  •   Convert taxpayer’s electronic records to readable files for the auditor.