The Department of Treasury (Treasury) auditors have adopted a policy of going back ten years on a sales tax or use tax audit where the taxpayer is not licensed or registered.  Furthermore, if the audit results in a deficiency, penalty of 25% is applied for failure to file the return.  If records do not exist, Treasury will compute an annual liability from the most current year and project it back ten years.

Treasury is within their statutory right to do the above.  They could go back to the start of business if the taxpayer is not licensed or registered. 

We recommend every taxpayer be licensed for sales tax and registered for use tax.

If the taxpayer fails to file a return or to maintain or preserve proper records, or the Department of Treasury has reason to believe that any records maintained or returns filed are inaccurate or incomplete and that additional taxes are due, the Department of Treasury may assess the amount of the tax due from the taxpayer based on information that is available or that may become available. (MCL 205.68(4))

Failure to produce and keep records for the purpose of examination by the Department of Treasury will be considered willful noncompliance and subject to penalties. In the absence of sufficient records the Department of Treasury may determine the amount of tax due the state by using any information available whether obtained at the taxpayer's place of business or from any other sources, and assess the taxpayer for any deficiencies, plus penalties. Section 17(1) provides: “That assessment is considered prima facie correct for the purpose of this act and the burden of proof of refuting the assessment is upon the taxpayer.” (Rule 205.23)

Licensees are required to keep complete and accurate daily records of all sales, whether for cash or credit, bartered or traded, irrespective of whether the seller regards the receipts from the sales as taxable or exempt. The taxpayer is also required to keep a complete and accurate record of beginning and ending inventories, purchase records, daily sales records, receipts, invoices, bills of lading, and all other pertinent documents pertaining to the business. (Rule 205.23)

If the seller claims sales for exemption on certain sales, it shall be required that he will keep a record of the name and address of the person to whom the sale is made, the date of the sale, the article purchased, the type of exemption claimed, and the amount of the sale. If exemption is claimed by reason of a sale for resale, the taxpayer shall obtain the sales tax license number of the purchaser. (Rule 205.23)