Sales Tax Compliance and Audit Selection

Literature on tax compliance has experienced explosive growth in the past 20 years. Yet the vast majority of this work has focused on individuals and compliance with the personal income tax, rather than company compliance and compliance with other taxes. This paper explores the subject of sales tax audit selection and firm underreporting of statutory sales tax liabilities. The analysis relies on sample selection estima tion techniques in identifying systema tic audit selection rules and the determinants of sales tax underreporting. The results support the view that sales tax accounts are chosen for audit nonrandomly. The analysis also provides strong evidence that taxpayer opportunities for underreporting are correlated with the observed behavior