What Happens When You Fail a Sales Tax Audit (CDTFA)

If you’ve recently received a responding to a CDTFA Notice of Determination, it likely means the audit didn’t go in your favor. Whether due to missing records, flawed estimates, or simple mistakes, failing a sales tax audit can trigger devastating financial consequences if not handled quickly and correctly.

• This guide walks you through:

• What “failing” a CDTFA audit really means
  
  
• What comes next
  
  
• What your options are
  
  
• How to protect yourself from liens, levies, and growing balances

WHAT DOES IT MEAN TO “FAIL” A CDTFA SALES TAX AUDIT?

CDTFA audits are scored based on their findings — but there’s no official “pass/fail.” However, if the CDTFA:

• Disallows your documentation
  
  
• Uses an estimate method you disagree with
  
  
• Assesses additional tax
  
  
• Imposes penalties or interest
  
  

...then it’s functionally the same as “failing” in the eyes of most business owners.

Audit results can easily exceed $25,000 to $100,000+, especially for restaurants, contractors, auto repair shops, and retailers. That’s why restaurant sales tax audit survival guide strategies are so important for small businesses in cash-heavy industries.

THE NOTICE OF DETERMINATION (NOD)

When the CDTFA completes its audit, it will issue a Notice of Determination — this is their formal billing notice.

It includes:

• Total taxes assessed
  
  
• Penalties (often 10% or 25%)
  
  
• Interest (which compounds monthly)
  
  
• Due date for payment or protest
  
  

You only have 30 days from the date on the NOD to file a petition for redetermination. After that, the full amount becomes final and collectible.

COMMON REASONS BUSINESSES “FAIL” CDTFA AUDITS

At Boulanger CPA, we specialize in sales tax audit defense in California   to help business owners reduce, reverse, or resolve CDTFA liabilities.

1. Missing POS or Sales Records
   No Z-tapes, daily sales summaries, or void reports? The auditor will reconstruct your sales — often using inflated estimates.
   
   
2. Unreported Cash Sales
   CDTFA will assume that cash-heavy businesses underreport unless proven otherwise.
   
   
3. Improper Exempt Sales Documentation
   If you didn’t collect valid resale certificates or documentation for non-taxable sales, they’ll disallow the deduction.
   
   
4. Inventory Reconciliation Issues
   CDTFA may perform a markup test using your purchases and calculate a higher sales figure than you reported.
   
   
5. Audit Expansion
   If they find problems in one quarter, they may expand the audit to cover additional years — increasing liability dramatically.

CONSEQUENCES OF FAILING A CDTFA AUDIT

Failing to act quickly can result in:

• A large balance that becomes final
  
  
• Tax liens filed against your business or personal assets
  
  
• Levies on bank accounts or merchant processors
  
  
• Suspension of your seller’s permit
  
  
• Personal liability for sales tax (yes, even on closed businesses)
  
  

And remember: California considers unremitted sales tax to be trust fund tax — meaning you collected it from your customer and didn’t remit it. That’s taken seriously.

WHAT ARE YOUR OPTIONS IF YOU DISAGREE?

If you believe the audit was wrong or overstated:

1. File a Petition for Redetermination

You must do this within 30 days of the NOD. It stops collections and allows you to contest the findings.

2. Request an Appeals Conference

This is an informal hearing before a CDTFA Appeals Bureau representative. You can present evidence, explanations, and alternate calculations.

3. Negotiate a Settlement

In some cases, you can settle for less through the CDTFA settlement program — especially if litigation would be costly or the liability is uncertain.

4. Payment Plan or Offer in Compromise

If you agree with the debt but can’t pay in full, you can apply for:

• Installment agreement
  
  
• California Offer in Compromise (for closed businesses)
  
  

WHAT HAPPENS IF YOU DO NOTHING?

Failing to act results in immediate collections. This may include:

• Wage garnishment (if a personal liability determination was issued)
  
  
• Levy of bank accounts or business assets
  
  
• Suspension of your seller’s permit
  
  
• Denial of future permits or licenses
  
  
• Loss of appeals rights
  
  

CDTFA is fast — and far less forgiving than the IRS.

HOW WE HELP BUSINESS OWNERS WHO “FAIL” AUDITS

At Boulanger CPA, we specialize in helping California business owners reverse, reduce, or resolve audit liabilities after the audit is done.

Our services include:

• Reviewing audit reports for errors
  
  
• Filing redetermination petitions
  
  
• Representing you in appeals
  
  
• Negotiating settlements
  
  
• Applying for penalty abatement
  
  
• Structuring payment plans or Offers in Compromise
  
  

We know how CDTFA thinks — and how to fight back.