Accounting Articles > Illinois Sales and Use Tax Audit:
What is an audit?
By definition, an Audit is an examination of claims. The numbers entered on either the ST-1 or the Sales and Use Return are claims.
For example, if you claimed $100,000 in receipts, of which $50,000 were sales taxable, $10,000 were freight, $30,000 were labor, and the last $10,000 were sold to charitable entities, and were therefore non-taxable. The Department might examine that claim to make sure that you didn't have $80,000 in taxable sales, to see if you were guilty of evading tax on the additional $30,000.
Alternately, what if you purchased a computer printer from Michigan for your service-based business, and failed to report a Use Tax? By not filing a Use Tax return, you would be claiming that you did not owe a tax, when really, you did.
In the examination, auditors need to see source documents that are by definition untainted. The documents must clearly indicate their source, such as a canceled check from a bank or a receipt from a vendor, in order to be considered evidence. Documents which could have been altered or fabricated will be considered tainted, and are therefore non-evidential.
Let me provide an example of why the law is so particular. Let's say that an Auditor asks for a copy of an invoice for what you reported as a non-taxable sale, which was actually taxable. You charged Illinois Sales Tax on the item, but did not remit the tax to the state. If the physical object of a duplicate copy were not required, a business owner could simply scan an invoice into a computer, digitally alter the information on it, and e-mail the altered check to me as evidence.
You can see how easy it could be to beat the system if this were allowed. Proper record keeping is essential in any business if it is going to survive. You need to keep the source documents.
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