taxes

Motor Fuels Tax Audit Procedures Manual - Ch. 153

Chapter 7 - 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 is the foundation of a good audit and generally sets the tone of the auditor's dealings with the taxpayer. The taxpayer should be left with the impression that the auditor will be honest and fair, flexible and interested in serving the taxpayer, and willing to educate and assist the taxpayer.

During the entrance conference the auditor should make the taxpayer aware of the purpose of the audit and what is expected of the taxpayer, as well as what the taxpayer may expect of the auditor.

Topics to Discuss

During the entrance conference for a fuels tax audit the following areas should be addressed.

  • What products are purchased, sold, or used (i.e., gasoline, diesel fuel, dyed diesel, liquefied gas, kerosene, dyed kerosene, kerosene type jet fuels, different number specifications of fuel oil, natural gasoline, etc.)?
  • How does the taxpayer determine when to charge tax and when not to?
  • How are files of signed statements maintained including AG and DD numbers: In customer files or in separate files?
  • Has the taxpayer been selling taxable fuel on a net basis? Does the taxpayer have the necessary proof of resale statements?
  • What type of customers does the taxpayer have? (i.e., distributor, suppliers, brokers, truckers, contractors, farmers, industrial plants, service stations, municipalities, government, etc.)
  • Does the taxpayer maintain bulk storage facilities? What kind, number, capacity, location and combined capacity of bulk storage does the taxpayer have?
  • How are products delivered to the customer? (i.e., taxpayer's trucks, customer's trucks, customer's barges, ships, common carrier such as trucks, pipeline, rail, ships or barges)
  • Does the taxpayer sell fuel through a service station or on consignment? If applicable, where is each service station located? How are sales of fuel at the service station reported?
  • Does the taxpayer have a written agency relationship with any of his consignee dealers whereby the dealer can accept a signed statement from a customer and make bulk tax-free sales as an agent for his supplier? If such an agency exists, then such sales would be valid tax-free sales by the supplier.
  • Does the taxpayer sell any fuel via storage facilities owned by exchange partners?
  • Does the taxpayer use any of the fuel for highway vehicles, non-highway vehicles or stationary engines? What kind of fuel is used?
  • Do any of the taxpayer's trucks travel interstate?

Types of Records

The types of records maintained for fuels tax are unique to the industry because gallons of fuel rather than dollars and cents are being recorded. Some of the records that should be examined include:

  • Bulk storage reports and inventory records.
  • Invoices.
  • Cargo Manifests.
  • Daily load tickets.
  • Customer sales records.
  • Weekly station reports
  • Load dispatch books.
  • Distribution logs.
  • Driver's logs.

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

Tour of Premises

A tour of the premises can be beneficial in:

  • Verifying that retail pumps are not connected to bulk storage facilities.
  • Determining storage facility capacity.
  • Determining ownership of transports.
  • Determining business practices and activities.
  • Determining the use of fuel.

Agreement to Extend Period of Limitation

The 67th Legislature established a four-year statute of limitation 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 Period of Limitation form is the most frequent method of extending the statute. The form, once it is signed by the auditor and authorized taxpayer representatives, and then 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 02/2004)