Disallowed Interstate Commerce Sales in CDTFA Audits
Businesses audited by the California Department of Tax and Fee Administration (CDTFA) frequently encounter adjustments involving transactions claimed as sales in interstate commerce. These issues frequently arise in the context of CDTFA audits where documentation supporting shipment outside California is incomplete or inconsistent with statutory requirements.
Under California law, sales in interstate commerce may be exempt from California sales tax when goods are delivered to a carrier for shipment to an out-of-state destination. However, the burden of demonstrating that a qualifying interstate transaction occurred rests with the retailer.
Documentation Requirements
Auditors typically examine several forms of documentation when evaluating interstate commerce treatment, including:
- Bills of lading
- Shipping invoices
- Carrier tracking documentation
- Contracts specifying delivery terms
Where documentation is incomplete or inconsistent, transactions may be reclassified as taxable California sales.
Audit Exposure
Disallowed interstate commerce transactions may materially increase audit assessments, particularly where sampling methodologies are applied. Once a classification error appears within the sample population, projected liability may extend across multiple reporting periods.
Structured Review
Careful review of shipping documentation, transaction records, and contractual delivery terms may help determine whether interstate commerce treatment is defensible during audit proceedings.