At Protea Financial, we know that the word “audit” usually sends a shiver down a business owner’s spine. It conjures images of IRS agents, stacks of receipts, and potential penalties. However, we want to reclaim the word.
In the context of healthy business management, an audit is not an interrogation; it is a diagnostic tool. It is a proactive “health check” for your operations that ensures you are safe from risk and primed for growth. Conducting regular internal process audits is one of the most powerful ways to move your winery or business from “surviving” to “thriving.”
It involves analyzing your workflow to ask two fundamental questions: “Are we following the rules?” and “Are we doing this the best way possible?” While there are many types of audits a business can undergo, ranging from operational efficiency to fraud prevention, there is one specific area where the stakes are currently highest and the rules are most complex: Sales Tax Compliance.
While we encourage you to review all areas of your business, at Protea Financial, our specialized audit focus is on helping you navigate the treacherous waters of sales tax.
The Landscape of Business Audits: An Overview
To run a tight ship, you should be aware of the different types of process evaluations available. While we don’t specialize in performing deep-dive audits for operations or internal fraud controls, we believe every business owner should understand their importance as part of a holistic management strategy.
1. The Operational Audit
An operational audit looks for “leaks”, including places where time, money, or inventory are slipping through the cracks due to poor workflows. This type of review examines your efficiency. Are you entering data twice? Is your inventory count consistently off because of a receiving error? Operational audits are about finding bottlenecks and smoothing out the “Order to Cash” cycle.
2. The Internal Controls Audit
This review focuses on security and fraud prevention. It evaluates the “checks and balances” within your company. Do you have a proper segregation of duties? For example, the person who approves a new vendor should not be the same person who cuts the checks. An internal controls audit ensures that your assets are safeguarded against theft and error.
3. General Compliance Audits (Labor and Excise)
Wineries face a unique regulatory burden. A general compliance audit might look at your labor practices (ensuring harvest staff are correctly classified as employees vs. contractors) or your federal excise tax reporting to the TTB. These are critical areas that require vigilance to ensure you aren’t running afoul of federal or state labor and alcohol laws.
The Protea Financial Focus: Sales Tax Compliance
While operational and general compliance reviews are important, the area where we see the most significant risk, and where we offer specialized, in-depth support, is Sales Tax Compliance.
Since the landmark South Dakota v. Wayfair Supreme Court decision, the landscape of sales tax has shifted beneath our feet. Physical presence is no longer the only standard for needing to collect sales tax; now, economic nexus (based on sales volume or revenue in a state) drives your obligations. For wineries shipping Direct-to-Consumer (DTC) across state lines, this has created a massive compliance web that is easy to get tangible in.
A Sales Tax Compliance Audit by Protea Financial is a deep dive into this specific, high-risk area. Here is what we look for and why it matters.
1. The Nexus Study: Where Do You Owe?
The core of our sales tax audit is the Nexus Study. Many business owners assume they only owe tax in their home state. This is a dangerous misconception.
- Economic Nexus: We analyze your sales data state-by-state. Did you surpass $100,000 in sales in Georgia? Did you make 200 separate transactions to Illinois? Each state has different thresholds. If you crossed a threshold and didn’t register, you have exposure.
- Physical Nexus: Did you hire a remote marketing consultant in Texas? Did you store inventory in a third-party fulfillment center in New York? These actions can create a physical nexus, triggering a tax obligation immediately, regardless of your sales volume.
2. Technology and Rate Verification
Modern sales tax compliance relies heavily on technology, but software is only as good as its setup. “Set it and forget it” is a recipe for disaster.
- Software Audit: We review the configuration of your tax engines (like AvaTax or the tax settings within WineDirect/Commerce7). Are the tax codes mapped correctly to your products?
- Rate Accuracy: Tax rates change frequently at the local, county, and district levels. We verify that your system is pulling the most current rates for the specific addresses you are shipping to, ensuring you aren’t under-collecting (and paying the difference out of pocket) or over-collecting (and risking customer lawsuits).
3. Product Taxability Review
Not everything you sell is taxed the same way. Wine might be taxed differently than merchandise, and shipping charges might be taxable in one state but exempt in another.
- Shipping & Handling: Is shipping taxable in Pennsylvania? Is packaging included in the tax base? We audit your invoices to ensure these line items are treated correctly according to the destination state’s rules.
- Bundles and Gift Sets: If you sell a gift basket with wine, cheese, and a branded corkscrew, how is that taxed? We review your product mapping to ensure complex items are being handled compliantly.
4. Filing History and Exposure Analysis
Finally, we look at your past. We review your previous sales tax returns against your actual sales data to identify discrepancies.
- Under-Reporting: If we find areas where you should have collected tax but didn’t, we quantify that “exposure.” Knowing this number allows you to make strategic decisions about Voluntary Disclosure Agreements (VDAs) to mitigate penalties before a state auditor comes knocking.
- Notices and Correspondence: We review any notices you’ve received from state agencies to ensure they were handled correctly and that no outstanding liabilities remain.
Why Prioritize a Sales Tax Audit from Protea Financial?
You might ask, “Why focus so heavily on sales tax?” The answer is simple: Liability.
Unlike operational inefficiencies, which cost you profit over time, sales tax errors create a fiduciary liability. The money you collect for sales tax isn’t yours; it belongs to the state. Mishandling it is viewed severely. Furthermore, if you fail to collect tax when you should have, the state can come after you for that money, plus interest and penalties that can sometimes exceed the original tax amount.
By engaging Protea Financial for a Sales Tax Compliance Audit, you are buying peace of mind. You are ensuring that as your business grows and your wine ships to new corners of the country, your compliance foundation is solid. We help you identify the risks, clean up the errors, and set up a system that keeps you compliant moving forward.
Don’t let an unseen tax obligation derail your success. Let us perform a diagnostic check on your sales tax processes today. Find out more. Contact Protea Financial now so you can see if your winery or business is fully compliant.
