Companies spending more on state sales tax compliance.

State sales tax audits are on the rise, both in dollar amount and frequency, according to a nationwide survey by Vertex Inc., a tax research group.

U.S. companies conducting business in multiple states are now spending, on average, $106,000 annually on state sales tax audit, compliance and assessment costs, while 82% of all multistate businesses reported being audited at least once in the past year.

"Accountants, tax departments and consultants are feeling the heat," according to Jon Riewe, vice-president of research for the Vertex group. "The pressure from the states is translating into costly audit bills for these companies."

Two-third of the financial executives surveyed believe audit activity has increased over the past three years and the recession contributed to the increase. A majority believe the dollar amounts of state sales tax audit assessments have risen in the same period, adding to the companies' overall tax bill. Generally, assessments are levied for unpaid taxes plus penalties and interest.

The exhibit on page 19 ranks the most aggressive states in sales tax auditing.

It pays to negotiate. Of the 42% of audited companies that decided to negotiate rather than pay outright, the final assessment was reduced by an average of 39%. Only 16% of all sales tax audits resulted in no assessment.

Lack of an exemption certificate and improper interpretation of the law ranked as the leading transgressions triggering sales tax audit assessments. Exemption certificates were the type of record most likely to be requested by auditors, followed by billing records, general ledgers, supplier invoices, purchase orders, inventory records, tax return copies and fixed asset records.

The average sales tax audit took three and one-half months to complete, with auditors on site for about two weeks.

For more information on the 1991 sales tax audit survey, contact Vertex Inc. at [phone].