taxes

Cigar & Tobacco Products Tax Manual

Chapter 3 – Entrance Conference

Introduction

The entrance conference is a meeting between the auditor and the taxpayer or taxpayer's designated representative prior to beginning the examination of the taxpayer's books and records. This is generally the first face-to-face meeting between the taxpayer or representative and the auditor.

The entrance conference builds the foundation and sets the tone of the audit by making the taxpayer aware of the purpose of the audit and what to expect during the course of the fieldwork.

Entrance Conference with a Texas Distributor

Use the following checklist to prepare a list of questions to discuss with the taxpayer/representative during the entrance conference.

  1. Determine the taxpayer's knowledge of the law.
    1. Discuss the taxpayer's interpretation of both the law and rules.
    2. Is the taxpayer aware of recent changes in tax policy/law affecting the business?
  2. Discuss the business activity.
    1. What are the types of customers?
    2. Does the taxpayer sell via their company stores or other retail?
    3. Identify types of non-taxable sales.
    4. Who are the suppliers?
  3. Discuss the taxpayer's accounting system and reporting activities.
    1. Determine the taxes to be audited.
    2. What types of records are available to conduct the audit?
    3. Where are the records located?
    4. Who prepares the report? Have there been any personnel changes?
    5. What are the step-by-step procedures used by the taxpayer to prepare the return?
    6. What internal controls are in place to ensure that all cigar and other tobacco products are reported?
  4. Discuss purchases.
    1. How are the purchases recorded and compiled for the reports?
    2. Are purchases recorded and reported on the date received or the date invoiced?
    3. If the purchases were reported as received, how are the damaged and returned products accounted for?
  5. Verify the data from the history with the taxpayer and complete any appropriate file maintenance.
  6. Request a tour of the premises.

Entrance Conference with an Out-of-State Distributor

Use the following checklist to prepare a list of questions to discuss with the taxpayer/representative during the entrance conference.

  1. Determine the taxpayer's knowledge of the law.
    1. Discuss the taxpayer' interpretation of both the law and rules.
    2. Is the taxpayer aware of recent changes in tax policy/law affecting the business?
  2. Determine business activity.
    1. What are the types of customers?
    2. Does the taxpayer sell via their company stores or other retail?
  3. Discuss the taxpayer's accounting system and reporting activities.
    1. Determine the taxes to be audited.
    2. What types of records are needed to conduct the audit?
    3. Where are these records located?
    4. Who prepares the reports? Have there been any personnel changes?
    5. What are the step-by-step procedures used by the taxpayer to prepare the return?
    6. What internal controls are in place to ensure that all cigars and other tobacco products are reported?
  4. Verify the data from the history with the taxpayer and complete any appropriate file maintenance.
  5. Determine how shipments to Texas are recorded and compiled for the Reports.
  6. Request a tour of the premises.

Types of Records

The types of records maintained for cigar tax are unique to the industry because the number of cigars (volume) rather than weight are being recorded. Other tobacco products are based on weight. Typical records include:

  • Receiving reports
  • Invoices
  • Shipping documents
  • Purchase orders

Note: The person who prepares the returns for the taxpayer will generally have summaries, work papers, computer runs, etc. filed with the taxpayer's copy of the returns.

Agreement to Extend the Period of Limitation

Obtain a statute waiver, if necessary. The 67th Legislature established a four-year statute of limitations for all taxes. The Legislature also allowed for an extension of the statute of limitation up to two years on any single agreement. An Agreement to Extend the Period of Limitation form is used to extend the statute. The form, once signed by the auditor and authorized taxpayer representative, constitutes a legal document. It establishes a new expiration date for specific reporting periods to allow for the completion of an audit. See the Auditing Fundamentals Manual for more information.

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(Revised 07/2012)