What Triggers a CDTFA Sales Tax Audit in California?
Sales tax audits from the California Department of Tax and Fee Administration (CDTFA) can feel like they come out of nowhere — but in reality, they’re often based on predictable red flags. If you’re a California business owner, especially in a high-risk industry, it’s important to understand what draws the CDTFA’s attention and how to protect yourself before the audit notice arrives.
In this article, we break down the most common audit triggers — and what to do if your business is at risk.
1. Late or Inconsistent Sales Tax Filings
One of the biggest red flags is irregular filing behavior:
- Missing monthly or quarterly returns
- Filing late repeatedly
- Showing wildly fluctuating sales tax due amounts
Even if the problem was caused by a bookkeeping delay or turnover, the CDTFA may interpret it as a sign of underreporting — and open an audit to investigate further.
2. Sales Underreported vs. Other Records
If your reported taxable sales don’t align with:
- 1099-K merchant processor reports
- Bank deposits
- Franchise Tax Board (FTB) gross receipts
the CDTFA may assume you’re understating your revenue — even if the mismatch is due to non-taxable sales or misclassification.
3. You’re in a “High-Risk” Industry
The CDTFA targets certain industries more than others because they:
- Involve a lot of cash transactions
- Are prone to recordkeeping errors
- Have a history of noncompliance
Commonly audited business types include:
- Restaurants and food trucks
- Auto repair and tire shops
- Retail stores and smoke shops
- Hair salons and nail studios
- Construction contractors
- Wholesalers and resellers
If you’re in one of these sectors, your audit risk is much higher — even if you’ve never had problems before.
4. Prior Noncompliance or Audit History
If you’ve had past issues with:
- Missed filings
- Prior audits
- Sales tax debt
...you’re much more likely to land back on the CDTFA’s radar. Even if your prior audit went well, the agency may revisit you 3–5 years later to ensure “compliance continuity.”
5. Tips, Complaints, or Referrals
Sometimes CDTFA audits are triggered by:
- Employee whistleblowers
- Competitor complaints
- Random selection based on zip code sampling
You can’t control this — but if you’re vulnerable (e.g., inconsistent records, cash-only sales), even a small tip can lead to a full-scale audit.
What to Do If You’re at Risk
If any of the above triggers apply to your business:
- Get a sales tax compliance review done proactively (before the CDTFA does it for you)
- Organize your past 3–5 years of:
- Sales records
- POS reports
- Bank statements
- Filed returns (sales tax + income tax)
- Don’t go it alone. CDTFA audits are aggressive, assumption-based, and can result in huge assessments — even for innocent errors.
Speak with a California Sales Tax Audit Defense Expert
At Boulanger CPA and Consulting PC, we defend California businesses against CDTFA audits — from first notice through appeal.
📍 Based in Orange County — Serving All of California
Call:
657-218-5700
Email:
marc@boulangercpa.com
Schedule a Confidential Audit Review
Need help now? Visit our California Sales Tax Audit Defense page to learn how we can protect you before the CDTFA takes control.
Frequently Asked Questions
What are the most common triggers for a CDTFA audit?
CDTFA audits are often triggered by inconsistent sales tax filings, large fluctuations in reported sales, operating in high-risk industries like restaurants or retail, or discrepancies between state and federal tax filings.
Can a business be randomly selected for a CDTFA audit?
Yes. While most audits are risk-based, some businesses are selected at random as part of CDTFA’s routine compliance program. Even a “random” audit can be extensive and costly without proper documentation.
How does the CDTFA detect unreported sales?
The CDTFA uses third-party data, POS records, industry benchmarks, and markup formulas to estimate unreported sales. They may also review bank statements and compare them to reported gross receipts.
Do prior audits increase the risk of future CDTFA audits?
Yes. Businesses that have been audited previously—especially those with assessed liabilities or prior issues—are more likely to be audited again, particularly if the same red flags reappear.
How can I reduce my risk of being audited by the CDTFA?
Maintain accurate records, file timely and consistent returns, reconcile POS data with tax filings, and consult a CPA familiar with California sales tax law. Proactive compliance significantly lowers audit risk.
📣 About the Author
Marc Boulanger, CPA is the founder of Boulanger CPA and Consulting PC, a boutique tax resolution firm based in Orange County, California and trusted by high-income individuals and business owners across Southern California.
He is the author of Defend What’s Yours: A California Taxpayer’s Guide to Beating the IRS and FTB at Their Own Game, available now on Amazon. The book offers a step-by-step plan for resolving IRS and FTB tax debt without losing your business, your home, or your peace of mind.
With over a decade of experience resolving high-stakes IRS and State tax matters, Marc brings strategic insight to complex cases involving wage garnishments, bank levies, unfiled returns, and six-figure tax debts. He is known for helping clients reduce or eliminate tax liabilities through expertly negotiated settlements and compliance plans.
Marc is a Certified Public Accountant licensed in California and Oklahoma and holds the designation of Certified Tax Representation Consultant. He is a member of the American Society of Tax Problem Solvers (ASTPS) — the national organization founded by the educators and practitioners who have trained thousands of CPAs, EAs, and tax attorneys in IRS representation strategy.
Every case is handled with discretion, proven methodology, and direct CPA-led representation — not call center scripts.
📍 Learn more at www.orangecounty.cpa or call (657) 218-5700.
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