Sales and use tax audit samples consist of a subset of records drawn from a large population of transaction records. These sample transactions are examined for errors, including tax underpayments and overpayments. Projections are made from the errors observed in the sample to an estimate of the errors in the population. Usually positive and negative errors from the sample transactions are netted against each other to yield a total net error. Some audits consist of detail examination of all transactions above some dollar threshold, and sampling for transactions below that threshold.
Taxpayers benefit from efficient and effective sampling in sales and use tax audits.
Proper sampling improves efficiency by testing a much smaller number of records than a complete detail examination of the population. The sampling plan is effective when it provides an accurate estimate of the true amount of error in the population. Effectiveness is not directly measurable, since the true amount of error would be known only if every record were examined in detail. Sampling Risk, Nonsampling Risk, and Sampling Cost Researchers in many scientific disciplines have evolved sophisticated sampling methods over the past century. Some concepts relevant to sales and use tax audits are sampling risk, nonsampling risk, and sampling costs.