Statewide CPA-led representation for CDTFA sales & use tax audits, assessments, appeals, and petitions. Trusted by California businesses when the stakes are high.
A CDTFA Audit Can Devastate Your Business — Don’t Face It Alone
A notice from the California Department of Tax and Fee Administration isn’t just another letter — it’s the start of a process that can quickly spiral into six-figure assessments, aggressive records requests, and assumptions that put you on the defensive. The California sales tax audit process is fast moving and relentless.
Most California business owners are caught completely off-guard.
They were filing their returns, running their operations, and trying to stay compliant — and suddenly they’re told they may owe tens of thousands (or more) based on CDTFA estimates they’ve never even seen.
CDTFA audits move fast.
Once the notice arrives, the auditor will:
- Request years of bank statements, POS reports, merchant statements, and sales journals
- Apply markup ratios, credit-card ratios, or sampling methods that often overstate sales
- Expand the audit period if anything looks “inconsistent”
- Assess penalties and interest that grow every month
- Push preliminary findings that are difficult to overturn without a CPA-led response
Even honest businesses — restaurants, contractors, auto repair shops, retailers, online sellers — routinely receive inflated assessments built on assumptions, not facts.
But the most dangerous mistake you can make is sending in records without a strategy or trying to “explain things” directly to the auditor.
Once CDTFA anchors on their methodology, reversing it becomes much harder.
We defend business owners across all of California — from first notice through appeals, petitions, settlements, and every step of the CDTFA audit process.
Want to learn more about these audits, we have written about CDTFA markup audits explained and the CDTFA credit card ratio method.
CDTFA Sales Tax Audits – What You’re Really Dealing With
A CDTFA audit is not a simple “checkup” on your sales tax filings. It is a structured enforcement action built around assumptions, estimates, and ratios that can dramatically overstate what you actually owe if they go unchallenged. Understanding how these audits work – and where they go wrong – is the first step in protecting your business. For a detailed walkthrough, see our CDTFA sales tax audit California guide.
How CDTFA Audits Actually Work
CDTFA audits typically begin with a notice identifying the audit period and a request for records. The auditor reviews your sales tax returns, POS reports, bank statements, and merchant data, then applies various tests to decide whether your reported taxable sales are “reasonable.” If records are incomplete or inconsistent, the CDTFA will default to estimation methods – often to your disadvantage. You can see a step-by-step breakdown of the California sales tax audit process here.
What Triggers a CDTFA Audit?
Common audit triggers include:
- Large changes in reported sales or taxable sales from year to year
- High cash sales or patterns that don’t match industry averages
- Late, missing, or amended sales and use tax returns
- Prior audit history or referrals from other agencies
- Data mismatches between your returns and third-party information
For a deeper dive into red flags, see what triggers a CDTFA audit in California.
The Phases of a CDTFA Audit
While every audit feels different to the taxpayer, CDTFA generally follows a consistent structure:
- Notice & Initial Contact: The audit period is defined and records are requested.
- Fieldwork & Testing: The auditor reviews your documentation, selects test periods, and applies analytical procedures.
- Preliminary Findings: CDTFA shares proposed adjustments and additional tax due.
- Discussion & Rebuttal: You (or your representative) can challenge the numbers and methodology.
- Final Determination: If unresolved, CDTFA issues a Notice of Determination or Demand for Tax.
Sampling, Markup Audits & Credit Card Ratio Methods
When full records are not available or the auditor views them as unreliable, CDTFA turns to estimation tools:
- Sampling: A limited test period is examined and then extrapolated across the entire audit period. (See our discussion of the California sales tax audit process for how sampling is used.)
- Markup Audits: Purchases are marked up by an assumed profit margin to calculate “expected” sales. We cover this in detail in CDTFA markup audits explained.
- Credit Card Ratio Tests: The ratio of card sales to total sales is used to infer cash and unreported sales. You can learn more in our guide to the CDTFA credit card ratio method.
These tools are powerful – and often harsh. A single bad sample or unrealistic markup percentage can add tens of thousands of dollars to your proposed liability. Our job is to dissect these methods, challenge inappropriate assumptions, and replace guesswork with CPA-backed calculations. In more aggressive cases, CDTFA may also pursue sales suppression audits , which require a very careful response.
Estimated Assessments – When CDTFA Fills in the Gaps
If you are missing records, filed late, or never filed at all, CDTFA will not wait for perfect information. They will estimate tax based on bank deposits, industry data, or prior returns. Those estimates are rarely conservative. We work to rebuild a more accurate picture of your business – even when records are incomplete – so you are not paying tax on income you never earned.
Petitions, Appeals & Settlements
You are not stuck with the first number CDTFA proposes. If the findings are wrong, we can file a timely petition, pursue administrative review, and escalate to the CDTFA Appeals Bureau or the Office of Tax Appeals (OTA) when appropriate. In many cases, we also explore settlement options that recognize your documentation, ability to pay, and the practical realities of your business. For more on challenging CDTFA conclusions, see what to do if you disagree with CDTFA audit findings and how to appeal a CDTFA audit assessment.
Relief Options When the Balance Is Overwhelming
When a final balance is unavoidable, we help you evaluate payment plans, hardship considerations, penalty relief, and how the CDTFA balance interacts with IRS or FTB tax debt. The goal is a resolution you can realistically live with, not a number that destroys your business. In some cases, we may explore whether you can settle CDTFA tax debt in California based on your circumstances.
What to Do Before You Send Anything to CDTFA
The biggest mistake business owners make is forwarding records directly to the auditor without review. Before you send anything, you should:
- Understand the exact audit period and issues being examined
- Review your records for gaps, inconsistencies, and red flags
- Identify exempt sales, discounts, spoilage, and non-taxable transactions
- Organize documents so they tell the right story about your business
We handle this groundwork for you so CDTFA sees a clear, accurate, and defensible picture – not a stack of raw data taken out of context. If you’ve already received a Notice of Determination, it’s critical to respond to the CDTFA Notice of Determination properly so you preserve your rights.
The Audit Timeline & Industries CDTFA Targets
CDTFA audits can last from a few months to more than a year, depending on the volume of records, the complexity of your business, and how aggressively the auditor pursues adjustments. Certain industries see more scrutiny than others:
- Restaurants, bars, and food service
- Retailers and wholesalers (brick-and-mortar and online)
- Automotive repair, tire shops, and dealers
- Construction contractors and trades
- E-commerce and multi-state sellers
We discuss common risk areas by industry in industries targeted by CDTFA sales tax audits , which can help you understand why your business may have been selected.
The Role of a CPA in CDTFA Audit Defense – And What You Should Do Now
A CDTFA audit is not the time to “wait and see what happens.” Once the auditor has built their case, every day that passes makes it harder to unwind flawed assumptions. A CPA who understands CDTFA procedures can step in early to:
- Take over communications with CDTFA so you are not put on the spot
- Control what is provided, when, and in what format
- Rebuild sales and purchase data in a defensible way
- Challenge markup percentages, sampling periods, and audit techniques
- Position you for the best possible outcome – audit, petition, appeal, or settlement
If you have received a CDTFA audit notice – or suspect one is coming – the most important step you can take is to get experienced representation in place before the auditor’s assumptions become your reality.
Why Work With a CPA Who Specializes in CDTFA Audits?
Not every CPA – and certainly not every tax relief company – understands how the California Department of Tax and Fee Administration actually conducts sales and use tax audits. CDTFA has its own audit manuals, estimation tools, internal procedures, and settlement practices. If your representative doesn’t live in that world regularly, you end up paying for their learning curve. For a detailed overview of how these audits unfold, see our CDTFA sales tax audit guide on Orangecounty.cpa.
At Boulanger CPA and Consulting PC, CDTFA, FTB, and EDD enforcement work is not an occasional sideline – it is a core focus of our practice. We represent California business owners facing high-stakes audits, proposed assessments, and collection actions, and we treat each case like it may define the future of the business. You can see how aggressive California enforcement can be in our California tax enforcement overview.
What You Get When We Defend Your CDTFA Audit
- CPA-led strategy from day one: Your case is handled by a licensed CPA, not a call center or intake salesperson.
- Deep understanding of CDTFA methods: We know how auditors use markups, sampling, and ratio tests – and where those methods are vulnerable. Our article on CDTFA markup audits is one example of how we approach these issues.
- Reconstructed, defensible numbers: We rebuild sales and purchase data so the story your records tell is accurate and supportable.
- Protection from overreach: We push back when CDTFA expands scope, applies unrealistic assumptions, or ignores legitimate exemptions.
- Statewide representation: Based in Orange County, serving restaurants, retailers, contractors, automotive shops, and online sellers across California.
You do not need more stress, jargon, or guesswork. You need a professional who can step between you and the auditor, translate what CDTFA is really asking for, and manage the process so you can focus on running your business.
If you’re facing a CDTFA audit or proposed assessment, we’re here to provide calm, experienced, CPA-level representation – not scare tactics or empty promises.
Marc Boulanger, CPA
Founder, Boulanger CPA and Consulting PC
California CDTFA, FTB & EDD Enforcement Representation
How Our CDTFA Audit Defense Process Works
A CDTFA audit moves quickly. Here’s how we take control of the process and protect you from the start.
Step 1 — Book a Consultation
We review your CDTFA notice, identify immediate deadlines, and assess the scope of the audit. You’ll understand exactly what CDTFA is looking for and what risks you’re facing.
Step 2 — We Take Over Communications
We respond directly to CDTFA, challenge the scope of the audit, and control what is provided. This prevents misunderstandings and protects you from being pressured by the auditor.
Step 3 — Defense, Disputes & Resolution
We dispute inflated estimates, rebuild accurate sales data, represent you in petitions and appeals, and push for a fair and realistic resolution based on your actual business operations.
Professional Affiliations & Agencies We Work With
We provide CPA-led representation for California taxpayers dealing with CDTFA, FTB, EDD, IRS, and the Office of Tax Appeals. Below are the professional organizations we belong to — trusted communities of CPAs and tax resolution practitioners nationwide.
We Represent Clients Before:
- • California Department of Tax and Fee Administration (CDTFA)
- • California Franchise Tax Board (FTB)
- • Employment Development Department (EDD)
- • Office of Tax Appeals (OTA)
- • Internal Revenue Service (IRS)
Professional Memberships & Organizations
Frequently Asked Questions About CDTFA Sales Tax Audits
What triggers a CDTFA sales tax audit?
Common triggers include inconsistent sales tax filings, high cash sales, late or missing returns, prior audit history, data mismatches with merchant processors or income tax returns, and referrals from other agencies. Certain industries such as restaurants, retailers, automotive repair, construction, and online sellers are audited more frequently. For a deeper breakdown of red flags, see what triggers a CDTFA audit in California and industries targeted by CDTFA sales tax audits.
How far back can the CDTFA audit my business?
In many cases CDTFA will audit three years of sales and use tax returns, but the look-back period can be extended if returns were not filed, if there is evidence of substantial underreporting, or if fraud is suspected. It is not unusual for proposed assessments to cover more years when records are incomplete.
What happens if my records are incomplete or don’t match my returns?
When records are missing or inconsistent, CDTFA will rely on estimation methods such as sampling, markup audits, and credit-card ratio tests. Those methods can easily overstate taxable sales. Our job is to reconstruct defensible records, challenge unrealistic assumptions, and correct CDTFA’s estimates before they become a final assessment. We explain how these methods are applied in our guides on the CDTFA markup audit process and the CDTFA credit card ratio method.
Can I negotiate or reduce a CDTFA audit balance?
Yes. In many cases we can reduce the balance by challenging methodology, documenting exempt or non-taxable sales, correcting sample periods, or disputing markup percentages. When a balance remains, we may pursue a petition, appeal, settlement, payment plan, or hardship-based relief depending on the facts of your case. You can learn more about your options in what to do if you disagree with CDTFA audit findings , how to appeal a CDTFA audit assessment , and whether you can settle CDTFA tax debt.
Do I need a CPA or a tax attorney for a CDTFA audit?
Most CDTFA audits and appeals are resolved at the administrative level and are driven by accounting, sampling, and documentation issues. A CPA who regularly handles CDTFA audits can represent you, rebuild your records, and manage communications with the auditor. In more complex cases, we coordinate with tax counsel when appropriate.
What if my business has already closed or I’ve moved out of California?
CDTFA can audit and assess tax even after a business has closed, and in some situations may pursue former owners personally. We work with closed or dissolved businesses, as well as out-of-state owners, to manage audits, negotiate balances, and prevent aggressive collection actions where possible. In some cases we also evaluate whether you may be eligible to settle CDTFA tax debt based on your financial situation.
When should I contact a CPA about my CDTFA audit?
The best time to involve a CPA is as soon as you receive an audit notice or records request. Once CDTFA has built its case and issued preliminary findings, it becomes much harder to undo flawed assumptions. Early representation gives us more leverage to control scope, organize records, and prevent an inflated assessment. If you’ve already received audit correspondence, our CDTFA sales tax audit California overview is a good next step.
See Also: In-Depth CDTFA Resources on OrangeCounty.cpa
We maintain a full library of California tax enforcement articles at OrangeCounty.cpa for business owners who want to understand CDTFA, FTB, and EDD enforcement in more detail: