For auditing purposes, the auditor may refer to other records to determine the tax liability of the taxpayer, as follows:

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

   1. (a) Federal income tax returns;
   2. (b) Bank statements, including checks, deposit slips, and bank records of loans;
   3. (c) Purchase invoices or journals;
   4. (d) Gross profit tests based on expenses and withdrawals; and
   5. (e) Cash transactions;

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

   1. (a) Using purchase invoices or journals plus an acceptable industry markup;
   2. (b) Computing the ratio of gross taxable sales to gross sales from a like business and applying this ratio to gross sales;
   3. (c) Using a percentage markup based on like businesses; and
   4. (d) Using other indirect methods generally accepted under accounting principles; and

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

   1. (a) Invoices for sale for resale;
   2. (b) Invoices for exempt sales;
   3. (c) Invoices for out-of-state sales;
   4. (d) Freight bills showing out-of-state deliveries;
   5. (e) Invoices for returns and allowances; and
   6. (f) Worksheets for bad debts; and

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

   1. (a) Purchase invoices;
   2. (b) Disbursements journals or check registers; and
   3. (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).