Sales Tax Audit Performance among the States

Abstract

This article provides an econometric explanation for the different sales tax audit performances among the selected states. Using recently developed primary data for 1979, tax recovery from sales tax audits is found to depend principally upon the degree of sophistication used in selecting accounts for audit, as well as the total number of accounts available for audit and number of accounts actually audited. Variables representing location of audit selection (centralized versus decentralized), tax rates, auditor quality, and size of accounts do not contribute significantly to the models; thus, some commonly cited arguments for explaining performance differences among the states' sales tax audit programs are not supported. The major policy implication of the study is that most states could increase their audit effectiveness by utilizing more formal, computer-based selection techniques.

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