64:06:01:35.05Use 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.