California sales tax audits are methodical. Understanding each stage and the taxpayer’s rights at each allows you to contain scope and protect against unjustified assessments. This chapter walks through the four audit stages.

For audit triggers, see Audit Triggers. For preparation, see Prepare for Audit.

The Four Stages of CDTFA Sales Tax Audit

Stage 1Notice
Stage 2Records Review
Stage 3Sampling / Testing
Stage 4Assessment

CDTFA audit stages.
Stage Duration Key Document2
1. Notice Instant Audit appointment letter
2. Records Review 1 to 6 months IDRs and audit workpapers
3. Sampling / Testing 1 to 3 months Sampling methodology memo
4. Assessment 2 to 4 weeks Notice of Determination (CDTFA-345-SP)

Quick Reference

Jump to stage: notice, records review, sampling, or assessment. For document reference, see CDTFA audit document lookup. 15-min consultation free.

1. Notice and Initial Contact

CDTFA issues an audit appointment letter identifying the audit period, scope, and auditor. First contact typically includes initial Information Document Request.

If this is you: Audit notice received. Document the scope — which periods, which issues. Request Power of Attorney (Form CDTFA-392) through counsel.

Notice Stage Strategy

  1. Confirm audit notice legitimacy.
  2. File Power of Attorney (CDTFA-392).
  3. Identify scope. Period, issues, auditor.
  4. Organize initial records.
  5. Engage counsel for material cases.

2. Records Examination

The auditor reviews sales records, purchase invoices, resale certificates, and bank records. Auditor issues IDRs; taxpayer responds with documentation.

If this is you: Auditor has requested extensive documentation. Respond only to specific requests. Do not volunteer additional records beyond scope.

3. Sampling and Testing

For businesses with high transaction volume, CDTFA uses sampling — a representative period projected to the full audit period. Sampling methodology is heavily contestable; good samples produce manageable assessments, bad samples produce inflated ones.

If this is you: The auditor has selected a sample period. Scrutinize it — is it representative? Did it include anomalies? Sample challenges can dramatically reduce assessments.

4. Assessment and Notice of Determination

CDTFA issues Notice of Determination (CDTFA-345-SP) with the proposed assessment. Taxpayer has 30 days to file Petition for Redetermination.

If this is you: Assessment received. Calendar the 30-day deadline. File Petition for Redetermination even on preliminary basis to preserve rights.

Notice of Determination received? 30-day clock is critical. Book immediate consultation.

CDTFA Audit Document Lookup

CDTFA audit documents.
Document Purpose
Audit appointment letter Audit initiation
CDTFA-392 Power of Attorney
IDR Information Document Request
Sampling methodology memo Projection methodology
CDTFA-345-SP Notice of Determination (assessment)
Petition for Redetermination 30-day appeal
CDTFA-230 Resale certificates (evidence)
Publication 17 Appeals Procedures

CDTFA Statute of Limitations

  • 3 years standard.
  • 8 years for substantial understatement (25%+).
  • No limit for fraud or non-filing.
  • Waiver Form CDTFA-122.
  • 30-day Petition for Redetermination deadline.

CDTFA Audit Outcomes

CDTFA audit outcomes by preparation. Source: Brotman Law practice.
Preparation Quality Typical Outcome
Clean records + professional representation Minor assessment or no-change
Clean records + self-represented Moderate assessment
Poor records Projected assessment via unfavorable sampling
Missing resale certificates Assessment on resale transactions

CDTFA Audit Escalation Pathway

Initial Audit to Assessment

Stages 1-4 conclude with Notice of Determination.

Assessment to Redetermination

Petition for Redetermination within 30 days. CDTFA Appeals reviews.

Appeals to OTA

Denial at CDTFA can be appealed to Office of Tax Appeals, then Superior Court.

The First 48 Hours After CDTFA Audit Notice

  1. Document audit scope and period.
  2. File Form CDTFA-392 Power of Attorney.
  3. Pull records for audit period.
  4. Identify resale certificates, exemption claims.
  5. Reconcile against federal returns and bank records.
  6. Schedule initial meeting through counsel.
  7. Engage sales tax counsel.

★
Brotman Law has been recognized by Inc. Magazine as one of California’s fastest-growing law firms. We represent taxpayers in CDTFA audits at every stage. Our office is based in San Diego.

The ROI Question

Sampling methodology challenges at CDTFA frequently produce six-figure reductions. Professional representation during audit stages typically saves multiples of the fee.

Facing a California Sales Tax Audit?

CDTFA audits move quickly once a notice arrives. The direction of the audit is largely set by how you handle the initial document request and auditor interview. If you’re at any stage — from notice through assessment — we can review where things stand and identify what options are available.

Discuss My Sales Tax Audit →    Or call: (619) 378-3138

When to Engage an Attorney for CDTFA Audit

  • Assessment over $50,000.
  • Sampling applied.
  • Industry-specific audit.
  • Out-of-state nexus question.
  • Prior CDTFA liability.

Any of the above apply?

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