Facing a Use or Sales Tax Audit in Maryland? Here’s What to Do

If you are facing a use or sales tax audit, S.H. Block Tax Services in Baltimore can help. Contact us today. 

Facing a Use or Sales Tax Audit in Maryland? Here’s What to Do

If you’re a small‑business owner in Maryland facing—or even just fearing—a sales tax or use tax audit, it’s time to get serious. An audit by the Comptroller of Maryland can add large uncollected or under‑accrued tax amounts onto your balance sheet, disrupt cash‑flow, trigger penalties and interest, and threaten the viability of your business.  

At S.H. Block Tax Services, we provide experienced use and sales tax audit representation to help Maryland businesses prepare for and navigate these audits, so you can restore stability and focus on growth. 

Here’s how we can guide you from preparation to resolution with practical steps, Maryland‑specific rules, and the kind of hands‑on support your business deserves. 

What is a Sales Tax Audit and Use Tax Audit in Maryland?

A sales tax audit involves the state verifying that your business has collected, reported, and remitted the correct amount of Maryland sales tax on all taxable goods and services.  

A use tax audit looks at items or services you used in Maryland (or sold to Maryland customers) for which no sales tax was collected, meaning you may still owe use tax. 

For small businesses, these types of audits can be especially risky: missed tax collection, improperly claimed exemptions, changing tax rules, out‑of‑state purchases, and the complexities of calculating use tax can all draw attention. 

In Maryland, audits are generally selected using risk‑based criteria, and businesses should assume they could be selected at any time. 

Why Small Businesses Are Audited: Key Triggers in Maryland

Understanding what typically draws the Maryland Comptroller’s attention can help you identify risks before an audit letter lands in your mailbox. 

Common Audit Triggers:

• Sudden spikes or drops in reported taxable sales or exempt sales
• High ratio of exempt sales compared with similar businesses in your industry
• Purchase activity or vendor use tax issues (for example, out‑of‑state purchases where sales tax wasn’t collected)
• Discrepancies between vendor filings and your own records
• Complex tax situations such as online sales, multi‑jurisdictional sales, or digital goods and services
• A history of late returns, large adjustments in prior audits, or business closures or bankruptcies

How Far Back Can State or Use Tax Audits Go?

In Maryland, the look‑back period is typically three years from the date your tax return is filed. This period usually does not begin on any unfiled tax returns until they are filed, so filing on time is your best way to close these windows of exposure. 

However, in cases with suspected fraud or intentional evasion, the look-back period could stretch to six years. And in cases where particularly heinous misconduct is suspected, the look-back period might be infinite.  

These audit risks mean that as a business owner you must stay proactive, keep solid records for as long as they may be needed, and if you’re selected for audit, have a strategy ready. 

Sales Tax vs. Use Tax: What Maryland Businesses Need to Know

Sales Tax

When you sell a taxable good or service in Maryland, you must collect sales tax from the buyer (unless an exemption applies) and remit it to the state. Your records also must match those remittances. 

Use Tax

Use tax is the counterpart to sales tax: if you purchase something that is taxable in Maryland, but sales tax wasn’t collected (for example, from an out‑of‑state vendor), you as the business must self‑assess and remit the use tax. It also covers goods brought into Maryland for use, storage, or consumption.  

If sales tax has already been paid, use tax doesn’t apply—but if it wasn’t, the state may expect you to cover it. 

Many audits focus on use‑tax issues because they are less visible, yet still legally enforceable. For example, online or out‑of‑state purchases may trigger use tax exposure. 

What Happens When Your Business is Audited?

When the Maryland Comptroller selects your business for a sales tax or use tax audit, the process usually follows these steps: 

1. Notification. You will receive an audit letter that outlines the scope, tax period under review, and required documentation.
2. Preparation and gathering records. You’ll be asked to provide sales journals, receipts, invoices, exempt‑sales documentation, purchase records, and anything relevant to use tax obligations.
3. Examination. An auditor will review your submitted records, and may conduct interviews, compare your data to industry norms, and assess compliance.
4. Findings and assessments. If discrepancies are found, the auditor will issue a report with proposed adjustments such as additional tax, penalties, and interest.
5. Response and negotiation. You may submit additional documentation, request reconsideration, or negotiate payment terms.
6. Resolution and appeal rights. You’ll receive a final assessment. If you disagree, the business has appeal rights through the Comptroller and possibly the Maryland Tax Court.

The bottom line is that audits are time‑consuming and resource‑intensive. You’ll need a focused strategy and experienced tax audit representation to manage them effectively. 

How to Prepare BEFORE an Audit Letter Arrives

You are in the best position for a use or sales tax audit when you prepare ahead of time. Here’s what you can do: 

Maintain Comprehensive Records

• Sales invoices, customer receipts, tax‑exempt certificates.
• Purchase invoices for out‑of‑state goods, evidence of tax paid or use tax due.
• General ledger, bank statements, sales tax returns, and change logs for systems.
• Documented internal tax‑exemption policies and vendor use‑tax reviews.

Review Internal Tax Compliance

• Check whether your sales tax registration is correct for your goods or services.
• Assess whether any purchases should have triggered use tax and self‑remit if needed.
• If your exempt‑sales percentage seems unusually high, then flag and document it properly.

Evaluate Risk Areas

• If you’ve recently changed your business model, started online sales, expanded into interstate sales, or adjusted exemption classifications, these can be considered audit red flags.
• If you use affiliated‑entity purchases or cross‑jurisdiction transactions, then review nexus implications.

Put a Team in Place

When audit time comes, you’ll want a tax‑resolution partner who knows Maryland rules and has successfully navigated similar audits. S.H. Block Tax Services stands ready to step in and help. 

How S.H. Block Tax Services Helps Business Owners During a Maryland Audit

At S.H. Block, we offer you more than bookkeeping or tax‑filing support. We also specialize in audit preparation, representation and resolution, with a focus on Maryland sales and use tax. Here’s what we bring to the table: 

• Pre‑audit readiness review. We can evaluate your compliance, highlight risk exposures, correct past use tax omissions, and tighten documentation before the auditor calls.
• Audit response coordination. Once an audit is announced, we help you assemble the required documentation, communicate with the state on your behalf, and manage deadlines and inquiries.
• Negotiation and mitigation. If assessments arise, we can assist in negotiating installment plans, penalty abatements, or recalculations based on realistic collecting ability.
• Post‑audit compliance planning. We help you implement stronger internal controls and record‑keeping habits to minimize your risk of future audits and build a tax posture that supports sustainable growth.
• Full support for both sales and use tax issues. Whether your business missed collecting sales tax, failed to remit use tax, or misclassified exempt vs. taxable sales, we have the Maryland tax compliance experience to help.

By working with S.H. Block, you get a team oriented toward outcomes, not just cleanup. Our goal is to help you move past the audit, stabilize your business, and gain back focus. 

What You Should Do Right Now If You Face or Suspect a Use or Sales Tax Audit

1. Take the audit notice seriously and act immediately. Delays raise red flags and reduce your room to negotiate.
2. Notify your internal leadership and prepare resources. Designate someone to work with us and coordinate the document collection.
3. Engage S.H. Block Tax Services. Early involvement gives us more time to review, strategize, and position your business for the best outcome.
4. Stay cooperative, organized, and professional. In audit interactions, timely and accurate responses help foster credibility.
5. Protect your cash flow. Don’t assume you can immediately absorb the full assessment. Work with us on payment strategies or remission options if needed.

Realistic Outcomes and What You Can Expect

While every audit is unique, here are some common outcomes for small businesses who engage with help: 

• Reduced assessment amounts thanks to documenting previously omitted exemptions or correcting errors.
• Removal or reduction of penalty charges when non‑willful errors are shown with proper documentation.
• Structured payment plans that align with business cash‑flow rather than demand lump‑sum payments.
• A reduced likelihood of future audits.
• Stronger internal tax compliance processes that become a business asset rather than a liability.

In Maryland, sales tax receipts alone exceeded $2.44 billion in recent data according to the Maryland Comptroller. That level of revenue provides the state strong motive and resources to conduct audits and enforce compliance, so being proactive is critical. 

Frequently Asked Questions by Maryland Business Owners

How long can the Comptroller audit my business?
Typically look‑back is three years; but in cases of fraud or deliberate evasion, it can go to six years. 

Will the auditor use industry averages if my records are incomplete?
Yes. If your records are missing or incomplete, the Comptroller’s office may use a “like‑kind business” comparison or estimate your liability based on similar businesses—often creating higher assessments. 

Is use tax really a big risk for my business?
Yes, especially when you purchase out‑of‑state or online and sales tax wasn’t collected. Maryland is increasingly focused on use‑tax compliance. 

Why Waiting or ‘DIYing’ an Audit Isn’t Enough

Some business owners assume an audit can just be handled internally, or that one won’t ever happen to them. But the stakes in Maryland are real. Penalties, interest, and the risk of incorrect assessments are damaging. Having a tax‑audit expert means you’re proactively controlling the narrative, the documentation, and the outcome. 

At S.H. Block Tax Services, your business will get a partner who will help you resolve the audit and build forward, rather than just survive it. 

Facing a Sales or Use Tax Audit? Take the Next Step

If you’ve received an audit notification from the Maryland Comptroller or believe your business might be at risk of a sales or use tax audit, don’t delay. The sooner you engage, the more we can do to manage exposure and chart the best path. 

Call (410) 872‑8376 or fill out our contact form for a free consultation with S.H. Block Tax Services. We’ll review your current situation, highlight your risk exposure, and walk you through your options with clarity and confidence. 

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.