Understanding CDTFA Audit Sampling Methodology

Sales tax audits conducted by the California Department of Tax and Fee Administration (CDTFA) frequently rely on statistical sampling techniques to evaluate compliance. Rather than reviewing every transaction, auditors may select a representative sample of records and project any identified errors across the audit period.

Sampling methodology can significantly influence the magnitude of a proposed assessment. Sampling issues often arise during California sales tax audits.

Why Sampling Is Used

Audits may involve thousands or even millions of transactions. Reviewing each transaction individually is often impractical. Sampling allows auditors to analyze a smaller set of transactions and extrapolate findings across the broader population.

However, the accuracy of a projection depends heavily on how the sample is selected and classified.

Common Sampling Issues

Businesses may encounter several issues during sampling reviews, including:

• Misclassification of sampled transactions
• Incomplete supporting documentation
• Inconsistent treatment of similar transactions
• Errors in sample population selection

Even small classification errors can produce significant projected liability once applied across multiple reporting periods.

Reviewing Sampling Results

Careful review of the sample population, transaction classifications, and projection methodology is essential before accepting an audit determination. Structured review may reveal adjustments that materially affect the final assessment.