Audit Selection and Firm Compliance with a Broad-Based Sales Tax
Posted: 24 Sep 2004
This paper examines the process by which firms are selected for a sales tax audit and the determinants of subsequent firm compliance behavior, focusing upon the Gross Receipts Tax in New Mexico. A two-stage selection model is used to estimate the State's audit selection rule and, conditional upon audit selection, the firm's compliance choice. The first-stage estimation results indicate that auditors select returns based upon a systematic, even if informal, audit rule. The second-stage results show that firms that exhibit greater variation in deductions, provide services, miss filing deadlines, and have an out-of-state mailing address have a lower compliance rate.
JEL Classification: H25, H26, M49
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