What If You Disagree With the CDTFA’s Audit Findings?

Q: What if I disagree with the CDTFA’s audit conclusions?

If you disagree with the CDTFA’s audit conclusions, you generally have 30 days from the date on the Notice of Determination to file a written petition for reconsideration and dispute the findings. You should gather detailed documentation to support your position and request an appeals conference through the CDTFA’s appeals process.

Q: Can I appeal a sales tax audit result in California?

Yes. In California, you can appeal a sales tax audit result by filing a timely petition with the CDTFA. After that, you may request an informal Appeals Bureau hearing and, if necessary, escalate your case to the Office of Tax Appeals (OTA) for an independent review.

Q: How do I prove the CDTFA audit is wrong?

To challenge a CDTFA audit, you must provide original records that contradict the auditor’s estimates or assumptions. This often includes POS reports, detailed sales journals, receipts, purchase invoices, bank statements, and filed sales tax returns that show a more accurate picture of your taxable and non-taxable sales.

Q: Will collections pause while I appeal?

Yes. If you file a petition within the required 30-day period, CDTFA collection activity on the disputed assessment is generally suspended while your appeal is under review. Missing the deadline may allow collections to proceed.

Q: Can I settle instead of appealing the audit?

Yes. In some situations you may be able to resolve CDTFA audit debt through an Offer in Compromise or by negotiating a payment plan instead of pursuing a full appeal. Settlement options are more common when a business is closed, the tax is uncollectible in full, or paying the full balance would cause significant hardship.

If you’ve been through a California sales tax audit with the CDTFA and received a tax bill that seems completely off base, you’re not alone.

The California Department of Tax and Fee Administration (CDTFA) often issues assessments based on:

Incomplete records
Industry averages
Flawed sampling methods
Assumptions that penalize honest businesses

So what do you do when the auditor’s conclusions are wrong?

The good news: You have the right to challenge and correct those findings.

This post explains:

Why CDTFA audit findings are often wrong
How to respond to a Notice of Determination
The process of disputing an audit result
What evidence matters
When to get a CPA involved

COMMON REASONS BUSINESS OWNERS DISAGREE WITH CDTFA FINDINGS

The CDTFA audits thousands of California businesses every year — and many assessments are based on:

Missing documentation (invoices, Z-tapes, sales summaries)
Overestimated markup rates
Misclassified sales (e.g., non-taxable sales treated as taxable)
Improper sampling (especially in restaurants and retailers)

These lead to inflated tax bills that don’t reflect reality.

If your audit includes assumptions or estimates that are clearly off — you must act before the assessment becomes final.

STEP-BY-STEP: WHAT TO DO IF YOU DISAGREE

1. Request a Full Explanation of the Audit Methodology

Ask the auditor for:

Markup calculations
Source documents
Sampling details
Specific reasons for disallowed deductions

You’re entitled to understand how they arrived at their conclusions.

2. File a Timely Petition for Reconsideration

If you received a Notice of Determination, you have just 30 days to:

File a written petition stating your disagreement
Provide a summary of your position
Request an appeals conference or formal hearing

Do not delay — the CDTFA does not extend this deadline.

3. Submit Evidence to Refute the Findings

You’ll need:

Sales summaries, invoices, and receipts
POS data, Z-tape totals, or journal reports
General ledger records
Bank statements tied to business deposits

Organize your data to show why the CDTFA’s estimate is flawed.

DISPUTE RESOLUTION CHANNELS

You can dispute CDTFA audit findings through:

The Appeals Bureau – informal hearing with a CDTFA attorney

The Office of Tax Appeals (OTA) – independent 3-judge panel

Superior Court – after paying and filing a refund claim (last resort)

Each step offers a fresh chance to present your evidence and reduce or eliminate the proposed assessment.

CAN YOU SETTLE INSTEAD OF APPEALING?

Yes — if your finances don’t support full payment, you may qualify for:

An Offer in Compromise (if the business is closed)
A payment plan (if you agree with some or all of the liability)

Settling may be faster and less risky than litigating a losing case.

WHEN TO BRING IN A CPA

A California sales tax CPA can:

Review your audit file for errors
Recalculate liability based on real data
Represent you during appeals
Negotiate with the CDTFA on your behalf
File a corrected sales tax return package or settlement offer

At Boulanger CPA, we help businesses fight CDTFA audits, protect revenue, and restore peace of mind.

Frequently Asked Questions

What if I disagree with the CDTFA’s audit conclusions?

You have 30 days to file a written petition for reconsideration and dispute the findings. Gather documentation to support your position and request an appeals conference.

Can I appeal a sales tax audit result in California?

Yes. After filing a petition, you can request an informal Appeals Bureau hearing or escalate to the Office of Tax Appeals if needed.

How do I prove the CDTFA audit is wrong?

Submit original records like POS reports, receipts, sales tax returns, and bank statements that contradict the CDTFA’s estimates or assumptions.

Will collections pause while I appeal?

Yes. Filing a timely petition suspends collection action while your appeal is under review.

Can I settle instead of appealing the audit?

Yes, if you qualify for an Offer in Compromise or payment plan. This is common when the business is closed or the debt is unaffordable.

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Marc Boulanger, CPA — California Sales Tax & CDTFA Audit Specialist

Marc is a CPA with many years of experience helping California business owners resolve complex sales tax and CDTFA audit matters. With formal training in accounting and a Master’s degree in Accounting, Marc combines technical precision with practical experience across industries such as restaurants, auto repair, retail, and multi-location franchises.

Outside of work, Marc enjoys traveling the country with his wife of 30 years and their five children. His approach to audit defense is built on clear communication, thorough analysis, and treating every client’s business as if it were his own.