Audit Procedures for Hotel Occupancy Tax
Chapter 5 - Audit Write-Up
- Deficiency Audit
- Credit Audit
- No Tax Change Audit
- Amended Audits
- Schedules and Forms
- Audit Cover Letter, Example
- Audit Report, Example
- Index to Working Papers, Example
- Audit Adjustment Report
- Audit Adjustment Report , Example
- Tax Adjustment Summary
- Tax Adjustment Summary, Example
- Exam 100, Example
- Exam 200, Example
The result of an audit will be either a deficiency (tax is due to the state) a credit audit (taxes are due to the taxpayer) or a no tax change audit. A no tax change means that the reported amounts were correct and no audit adjustments are required. The write up procedures are different depending on the audit results.
The write up of a hotel audit is considered a manual audit write up as opposed to a sales tax audit (an uploaded audit) which is an automated tax. Since the hotel tax is not automated on the system the actual tax amounts need to be calculated by the auditor on excel schedules. These schedules are discussed later in this chapter.
A deficiency audit will be an audit that results in the taxpayer owing additional hotel tax to the State of Texas. This could be the result of exemptions that were claimed but were unsupported by exemption certificates. The hotel could have claimed deductions for permanent residents that did not meet the statutory qualifications of permanent residents. The taxpayer has the right to disagree with the audit results if they feel the audit is not accurate in its assessment.
A credit audit may arise from one of the following:
- Posting error by the taxpayer
- Receipt of Exemption Certificates
- Charging tax to a permanent resident in error
- Bad Debts
If a credit arises from tax collected in error from a customer, then the credit should not be given to the hotel until it has been refunded to the customer.
Before the refund is given to the hotel, the auditor must verify by one of the following procedures that the hotel has refunded the money to its customer.
- The auditor may verify a canceled check from the hotel paid to the customer for the refund of taxes.
- If the customer still does business with the hotel, then the auditor may verify the posting of a credit memo to the customer's account.
Credit interest will accrue on reporting periods due on or after January 1, 2000. Credit interest will not accrue on the refund amounts until after the hotel refunds the tax to the customer or applies the refund to the customer's account via a credit memo.
NOTE: Credit interest does not accrue on bad debts.
- Audit Procedure:
- Entry dates for the audit may or may not always coincide with the original transaction date. Footnotes should explain the original date of the transaction and the specifics regarding the entry. If a refund is due the hotel - credit interest will not apply until the date the hotel refunded the tax to the customer or credit has been given. In this instance dates may need to be altered for entry to the audit exam or an interest restart date may be given to an entire exam to process the correct beginning date for interest calculations.
No Tax Change Audit
When an audit examination results in no adjustments, then a No Tax Change audit should be prepared. Refer to the Auditing Fundamentals Manual for specifics.
An amended audit is an adjustment to a completed audit. Refer to the Auditing Fundamentals Manual for write-up procedures for an amended audit.
Schedules and Forms
Audit write-up includes completion of the following:
- Record of Audit Planning, Activities, and Results
- Exhibits (i.e., room agreements, monthly summaries, etc)
- Exams (schedules) and Supplemental Exams (supporting schedules)
- Index to Working Papers (Template)
- Audit Adjustment Report (Form)
- Tax Adjustment Summary (Auditor generated Exam)
- Audit Cover Letter (Template)
- Audit Report (Template)
See the Auditing Fundamentals Manual for specific examples or explanations of the documents, exhibits, templates and/or forms listed above.
A few of these documents are shown below.
Audit Cover Letter, Example
NOTE: Please use the FORM OPTION for the cover letter template when printing the cover letter to submit to the Review Processing Center (RPC).
Audit Report, Example
Index to Working Papers, Example
Audit Adjustment Report
The Audit Adjustment Report (AAR) is a form that needs to be completed by the auditor. The amounts on this form should be subtotaled by column. The AAR shown on the index is the automated computer prints that the Processing Center will add to the final audit package that is mailed to the taxpayer. This is the result from the information input by the Processing Center from the manual form prepared by the auditor.
Double check the amounts shown on the AAR manually to ensure that the tax entered on that form is the correct tax amount as shown on the Exam schedules. Differences noted could be rounding formulas in the excel spreadsheet.
Audit Adjustment Report, Example
Tax Adjustment Summary
Section 1.01 This is the auditor generated excel schedule that summarizes the tax due for all report periods in the audit. The Exams (that are referenced as sources for the numbers on the Tax Adjustment Summary) should be listed on the index and included in the audit package. The Tax Adjustment Summary should be totals that are forwarded from all Exam schedules that contain audit adjustments. The Excel spreadsheets should be double checked for any formulas and rounding that may affect the calculation of the tax. This is important as rounding may change the tax due. Double check the AAR manually to ensure that the tax entered is correct and that there are no math (rounding) errors.
Tax Adjustment Summary, Example
Exam 100, Example
Exam 200, Example
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