Audit Selection and Firm Compliance with a Broad-Based Sales Tax

39 Pages Posted: 19 Apr 2006

See all articles by James Alm

James Alm

Tulane University

Calvin Blackwell

College of Charleston - School of Business

Michael McKee

Appalachian State University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2005

Abstract

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.

Suggested Citation

Alm, James and Blackwell, Calvin and McKee, Michael, Audit Selection and Firm Compliance with a Broad-Based Sales Tax (March 2005). Andrew Young School of Policy Studies Research Paper Series No. 06-42. Available at SSRN: https://ssrn.com/abstract=897314 or http://dx.doi.org/10.2139/ssrn.897314

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

Calvin Blackwell

College of Charleston - School of Business ( email )

Department of Economics
66 George Street
Charleston, SC 29424
United States
843-953-7836 (Phone)
843-953-5697 (Fax)

Michael McKee

Appalachian State University - Department of Economics ( email )

Boone, NC 28608
United States

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