NJ Department of Revenue ramped up audits of small contracting businesses. This week I’ve seen or heard of more than a dozen audits case notices. The actions started last month. The initial audit notice is for sales tax. But my concern is that sales tax is not the real risk for these businesses. Many of these businesses has improperly classified workers as subcontractors. Some do not carry required workers compensation insurance. Some have workers paid in cash “off the books”. Each of these vulnerabilities can be uncovered during a sales tax audit interview and can be very expensive. The audit can be expanded to other areas if the agent has questions.
The best advice is to hire professional representation to handle the audit and avoid these other potential pitfalls. Representation costs, on average, about 10% of the amount under examination but this is a good decision if it limits the exposure. Then a professional can help the contractor address the risk to make sure it doesn’t happen again. In many cases, small contractor are surprised at how easily they can pivot to a fully compliant business with minimal impact to the bottom line.