64:06:01:35.05.  Use of other records to verify audits. For auditing purposes, the auditor may refer to other records to determine the tax liability of the taxpayer, as follows:

 

          (1)  When the gross sales records are inadequate, the auditor may refer to the following records:

 

               (a)  Federal income tax returns;

               (b)  Bank statements, including checks, deposit slips, and bank records of loans;

               (c)  Purchase invoices or journals;

               (d)  Gross profit tests based on expenses and withdrawals; and

               (e)  Cash transactions;

 

          (2)  When the gross taxable sales records are inadequate, the auditor may use the following methods of verifying the taxable sales:

 

               (a)  Using purchase invoices or journals plus an acceptable industry markup;

               (b)  Computing the ratio of gross taxable sales to gross sales from a like business and applying this ratio to gross sales;

               (c)  Using a percentage markup based on like businesses; and

               (d)  Using other indirect methods generally accepted under accounting principles; and

 

          (3)  Records the auditor may use to verify the deductions taken by the taxpayer include the following:

 

               (a)  Invoices for sale for resale;

               (b)  Invoices for exempt sales;

               (c)  Invoices for out-of-state sales;

               (d)  Freight bills showing out-of-state deliveries;

               (e)  Invoices for returns and allowances; and

               (f)  Worksheets for bad debts; and

 

          (4)  Records the auditor may use to verify the use tax purchases include the following;

 

               (a)  Purchase invoices;

               (b)  Disbursements journals or check registers; and

               (c)  Depreciation schedules.

 

          Source: 15 SDR 58, effective October 19, 1988; 21 SDR 219, effective July 1, 1995; 27 SDR 9, effective August 7, 2000; 28 SDR 178, effective July 1, 2002; 32 SDR 225, effective July 3, 2006.

          General Authority: SDCL 10-45-47.1(5), 10-45D-13(5), 10-46-35.1(5), 10-46E-11(4), 10-52-4, 10-52A-7(5), 49-31-51.1(4).

          Law Implemented: SDCL 10-45-45, 10-45D-12, 10-46-43, 10-46E-8, 10-52-4, 10-52A-6, 49-31-51.1(4).

 

          Cross-Reference: Accounting principles, § 20:37:11:08.