The following outlines the key internal and external parties involved in supporting the audit process. Identifying these stakeholders early ensures that the right people are engaged at the right time and that accountability is clearly established across teams.

• Internal stakeholders — Who are the internal contacts/owners needed to pull certain information and support the audit? Generally, the tax team will “own” an audit, but may also require data gathered from finance, legal, and other operations team(s).
• External stakeholders — Tax advisors, auditors, tax engine, and legal counsel who supported decisions around tax registrations.

The following materials provide a comprehensive snapshot of the organization's legal structure, operational activities, physical presence, and technical systems. Together, these documents establish the foundational context needed to understand how the business is organized, where it operates, and the systems that support its day-to-day functions.

• Current organization chart — Latest copy of the corporate organization chart, including details about subsidiary relationships and ownership percentages.
• Business operations — A brief document that summarizes each entity’s operations, product/service descriptions, revenue streams, and customer types.
• Geographic footprint — All locations where business is conducted (offices, warehouses, employees)
• System documentation — Tax engine configurations, ERP system setup, automation rules.

These are standard documents that any auditor will request, so it is important to know where these documents are stored. Delays in responding to auditors' initial information requests can lead to penalties and damage goodwill. Having the information readily accessible will help the team move quickly toward a successful resolution.

• Financial records — General ledger, trial balance, revenue by jurisdiction for the past 3-5 years.
• Tax returns — All filed sales tax/VAT returns by jurisdiction.
• Registration documentation — A list of everywhere the entities are registered for tax (payroll, income, and sales taxes)

Invoice details are the core of any audit, and copies of invoices are the supporting details that auditors request to support all requested reports. Therefore, accurate addresses and invoice templates set up from day one will set a company up for success and make this detailed information gathering as painless as possible.

• Full address collection — For customers in the SaaS or digital space, collecting addresses may not have been a priority when initially setting up a billing system, since a physical delivery is not relevant. However, as a company begins to roll out sales tax, address details are mandatory. Especially in the US, where there are over 10,000 taxing jurisdictions between cities, counties, and special districts, the more address data you collect, the better.
• VAT ID collection — For any company looking to sell, or eventually expand into non-US markets, a field to collect VAT IDs from customers is a must-have.
• Exemption certificate collection — If a company sells to non-profits, governments, resellers, etc., they will need to collect exemptions from these customers to support the non-taxable or reduced taxability charged to these customers. Exemption certificates are always requested by auditors to support non-taxable customer sales.

The following documents the basis for the company's taxable presence across US jurisdictions, covering both physical nexus and economic nexus based on sales volume. Given that lookback periods can extend to inception, comprehensive historical records are essential.

• Physical nexus — Where you have offices, warehouses, or inventory, and when were they established. Also includes, where you have employees, employees of affiliated entities, and/or contractors doing work on behalf of the company.
• Economic nexus — Provide a list of all sales made into the jurisdiction for the past X years. The lookback period here can be all the way back to an entity’s inception, so be prepared with records dating as far back as applicable.

The following documents the company's exposure and compliance position across international tax regimes, covering sales thresholds, customer VAT ID validation, warehouse and fulfillment locations, and where services are delivered. Together, these records establish where VAT obligations arise and how they have been managed.

• Distance selling thresholds — Provide a list of all B2C (and B2B in certain countries where such sales are taxable) sales into the jurisdiction.
• VAT ID collection — Provide a record of all sales where VAT was not charged because the customer provided a valid VAT ID. This report should at a minimum, include the customer name, address, VAT ID provided, and its validation method outcome.
• Local supply triggers — The locations where your warehouse and fulfillment centers are located.
• Service establishment — The locations where services are provided.

Once a jurisdiction has determined that you have nexus/crossed the filing threshold and when, the deep dive into the transactions within that period begins. For sellers with high transaction volumes, the auditor may request statistical sampling, as reviewing large data volumes is impractical.

When performing their taxability analysis, an auditor will commonly request transaction details at the product/SKU level. From there, they will bucket products by volume and work their way through the list. For example, if you sell 5 products, Product A, B, C, D, and E, with A making up 75% of your sales and B making up 10%, and the rest a smaller portion, they are going to deep dive most heavily into A and B.

Auditors will review any applicable documentation about your product(s). They may request further discussions with someone in the business to fully understand the product(s) and services being sold. Once they have gathered all applicable information, they will determine how the product is defined for tax purposes and whether it is taxable in their jurisdiction.

Depending on what is being sold, a taxability analysis by a tax advisor can be very beneficial here if your product(s) don't fall neatly into a clear category as defined by the jurisdiction. This is most common in the digital space, where, in the US in particular, definitions and guidance are often unclear. That analysis can be provided to the auditor as support for the tax rules you have chosen to apply to your product.

Exempt sales are primarily a US concept, whereby a seller makes a sale to a customer who provides a valid exemption certificate showing that the purchaser has a valid reason for the seller not charging them tax on the transaction. Common examples of exempt sales include sales to a reseller, a non-profit, or a government agency. To support an exempt treatment, the seller must have a valid exemption certificate from their customer that has not expired and includes all applicable fields. 

On audit, the seller will ask for all exempt sales and copies of the applicable exemption certificate to support those sales and the non-tax treatment afforded to them. This is a common time in an audit when sellers find shortfalls in their documentation, often due to expired certificates or customers who were “clearly” exempt or said they were, but no certificate was obtained. 

While states are often generous in giving companies time to return to their customers to collect those certificates, this can be a significant administrative and time-consuming burden, as well as a less-than-ideal experience for your customers. Furthermore, locating customers that have churned or are no longer in business can often be fruitless, and without a certificate to document the exemption, states will require tax to be paid on those transactions.

Reverse charge sales are an international VAT concept in which cross-border sales to an enterprise (i.e., a B2B sale) are not subject to tax on the invoice if the purchaser provides the seller with a valid VAT ID. By doing so, the seller is relieved of the obligation to charge VAT, and the purchaser affirms they will self-remit the VAT due on the purchase. Reverse charge happens because a valid VAT ID is provided. So even if all of a company’s sales are B2B, that will not excuse a failure to collect VAT IDs in support of the reverse charge. 

Similar to the exemption certificate context above, jurisdictions often allow customers a grace period to collect VAT IDs from customers. As noted above, this is often a significant, administrative, and time-consuming process that can affect a company’s customer experience.

While most taxable products and services are subject to the standard rate for the applicable address, certain jurisdictions apply alternate rates to specific product or service categories.

• SaaS and digital products — Some jurisdictions impose reduced rates on software-as-a-service, data processing, or other digital products. For example, Texas applies a reduced rate to SaaS and certain data processing services.
• E-books and publications — Outside the US in particular, e-books and physical books are commonly subject to a reduced VAT rate.
• Luxury goods — Some jurisdictions impose higher rates on goods classified as luxury items.
• Clothing — Certain jurisdictions apply reduced rates to clothing items below a specified price threshold.

While sales are generally sourced to the location where they are delivered, this is not always the case — particularly for non-physical goods and certain digital products.

• Destination sourcing — For non-physical goods, states apply a cascading hierarchy of sourcing rules to determine where a sale is sourced and what rate applies. Companies should collect as accurate address information as possible to support this analysis.
• Origin sourcing — For physical goods, and in some jurisdictions certain digital products, a handful of states source sales to the location the product is shipped or provided from, rather than where it is delivered.
• Unique product sourcing — Certain product categories, such as certain leases, may have sourcing rules that depart from the jurisdiction's standard approach.