How State Tax Agencies Use Outside Data to Create Estimated Sales Tax Assessments

In today’s world of data sharing and cross-agency enforcement, it’s no longer just your tax return that matters. State departments of revenue (DORs) increasingly rely on outside sources to estimate your sales—even if you haven’t filed a return or have done so correctly. From IRS 1099-K reports to state alcohol and tobacco agency data, businesses face growing exposure to estimated sales tax assessments based on third-party information.

This article explains how tax authorities use data from agencies like the Department of Highway Safety and Motor Vehicles (DHSMV), the IRS, and Alcoholic Beverages and Tobacco (ABT) divisions to build sales tax assessments—and what business owners can do to defend against them.

What Is an Estimated Sales Tax Assessment?

When a business fails to file, underreports sales, or raises red flags in a sales tax audit, the DOR may create an estimate of the taxes owed. This is known as a jeopardy assessment, estimated assessment, or best available information assessment—and it’s often built using third-party data.

In these cases, the DOR assumes taxable sales and calculates tax due without relying on your records. You must then protest or refute the assessment, or it becomes final.

Key Data Sources the DOR Uses

• IRS 1099-K Reports: Used to audit restaurants, retailers, and service providers based on credit card receipts.
• DHSMV Vehicle Title Records: Audits car dealers and vehicle sellers based on title transfers.
• ABT Alcohol/Tobacco Reports: Audits bars, gas stations, and convenience stores using purchase volume.

How the Estimated Assessment Process Works

1. Outside data (1099-Ks, DHSMV, ABT) is compared to reported sales
2. If mismatches are found, the DOR creates a sales estimate
3. That estimate becomes a proposed Notice of Assessment
4. You have a short window (usually 60 days) to respond

Why These Estimates Are Often Wrong

• They include tips or exempt sales
• They double-count revenue sources
• They ignore legitimate resale or exemption certificates

How Moffa Tax Law Defends Against Estimated Assessments

• We analyze the source data and uncover DOR mistakes
• We reconcile the actual sales and non-taxable amounts
• We protest the assessment and represent clients through litigation if necessary

FAQ: Estimated Sales Tax Assessments and Third-Party Data

What is an estimated sales tax assessment?

It’s a tax bill based on outside data and assumptions, issued when the Department of Revenue suspects underreporting or non-filing.

What data sources does the DOR use?

Common sources include IRS 1099-Ks, vehicle title records from DHSMV, and alcohol and tobacco purchase data from ABT.

Are these estimates always accurate?

No. They often overstate taxable sales by including non-taxable transactions, using flawed assumptions, or applying incorrect markup formulas.

How do I fight an estimated sales tax assessment?

You can protest the assessment by submitting documentation of actual sales, proof of exemptions, and reconciliation with third-party data.

How long do I have to respond?

Typically, you have 60 days from the date of the Notice of Proposed Assessment to file a protest or request reconsideration.

What if I never filed a return?

The DOR can still create an estimate using external agency data. It’s essential to act quickly to challenge the estimate and avoid enforced collection.