SALES TAX COMPLIANCE AND AUDIT SELECTION

Literature on tax compliance has experienced explosive growth in the p ast 20 years. Yet the vast majority of this work has focused on indivi duals and compliance with the personal income tax, rather than company compliance and compliance with other taxes. This paper explores the s ubject of sales tax audit selection and firm underreporting of statuto ry sales tax liabilities. The analysis relies on sample selection esti mation techniques in identifying systematic 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 ana lysis also provides strong evidence that taxpayer opportunities for un derreporting are correlated with the observed behavior of firms.