In the state of California, we have a sales tax department and a payroll tax department, thee EDD and the CDTFA. These agencies are so important to explain to business owners, how serious these audits can be. If you end up owing either one of these agencies money, whether for payroll taxes — whether you paid an independent contractor and it should have been an employee, or you are selling an item and not collecting the appropriate sales tax on it — you as the business owner, as the responsible party, as the person that was involved with the business, could be personally assessed a corporate liability. You can be assessed this liability for not paying these taxes, and the state of California has 20 years to collect from you.
So when you’re up against a sales tax audit or a payroll tax audit, it’s not something you can run from; you can’t shut down your business. You can’t try to give it to somebody else. You can’t say I’m out of it and I’m not going to do it anymore. This is a liability that will not stay with the corporation, the LLC, partnership, whatever the entity is that’s holding the business. The government views these taxes as theft. You should have paid the government this money, and they want to make sure that they are going after every willful and responsible person to collect the taxes that are due to them. So if you get a notice for a sales tax or a payroll tax audit, make sure you take it seriously.