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CDTFA audits: what triggers one, and what happens next

California found $745.3 million in sales and use tax deficiencies in one year. Here is what triggers an audit.

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Last reviewed

The CDTFA identified $745.3 million in sales and use tax deficiencies in FY2024-25, roughly 19% up on the prior year. Its compliance programmes returned over $1 billion at a benefit-to-cost ratio of about 7.5 to 1.

Historically the audit programme touches around 1% of active accounts annually. Small, until it is you.

What actually triggers an audit

  • A gap between gross receipts reported to the CDTFA and revenue reported on your income tax return
  • Claimed exempt or resale sales that are high relative to your industry
  • Being a cash-intensive business: restaurants, bars, convenience retail
  • A supplier's or customer's own audit naming you
  • Never having accrued use tax, which is visible in your own purchase records
  • A Statewide Compliance and Outreach Program field visit escalating to a referral
  • Industry sweeps, which the CDTFA runs by sector periodically

How far back it goes

CDTFA statute of limitations

Three years where returns were filed. Eight years where a return was not filed for a period. No limitation at all in cases of fraud.

That asymmetry is why unregistered periods are far more dangerous than under-reported ones, and why voluntary disclosure, made before contact, is frequently worth far more than it costs.

The first two weeks matter most

Do not send records or answer detailed questions before speaking to someone who handles these. California requires a Power of Attorney on file before anyone can represent you.

Most audits use statistical sampling rather than examining everything, and the sampling method is negotiable. Agreeing to a method that is unrepresentative of your business is the most expensive thing that can happen early, and it usually happens without the taxpayer realising a decision was being made.

If you think you owe and have not been contacted

Act now. California's voluntary disclosure programme can limit the lookback and abate penalties, and it generally closes once the CDTFA initiates contact.

This is the clearest case in California tax where moving early is worth real money.

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CDTFA audit representation

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 Who we serve

Restaurants & retail

Common questions

Not answered here? Ask us directly: we would rather explain it than have you guess.

What is the most common finding?

Unsupported resale and exemption claims. If you accepted a resale certificate that was incomplete, expired or taken in bad faith, the sale can be reassessed as taxable, and you owe tax you never collected. Second is unaccrued use tax on out-of-state purchases. Both are found in records you supplied yourself.

Should we handle it ourselves?

For a very small, simple, well-documented business, sometimes. The places it goes wrong are technical: sampling methodology, conceding arguable issues, or providing records that widen the audit's scope. Those decisions all get made early, often without the taxpayer recognising them as decisions.

How do we start?

Book a scoping call using the form on this page, or call us. We will ask what you need, who is asking you for it, and what condition your records are in, then tell you what the engagement involves and what it will cost before anything begins.

Book a scoping call

Twenty minutes, no charge. Tell us what you need and we will tell you what it involves, what it will take, and whether we are the right fit for it.

  • A short call with the person who would actually do the work.
  • A clear scope and a fixed quote before anything begins.
  • We reply to every enquiry within one business day.

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What to do in the first two weeks of a CDTFA audit

The early decisions in a sales tax audit set the shape of the whole thing: the period, the sample method, and what leaves your office. This is the sequence we follow.

  • What to send in response to the first letter, and what to hold
  • How the sample period is chosen and where you get a say
  • Records to assemble before the opening conference
  • Statute of limitations and waiver requests, in plain terms

There is no instant download. A person sends it, usually the same working day.

We email you this one document and nothing else unless you ask. We do not share your details, we do not add you to a sequence, and one reply saying stop ends it.