Many sales tax audits involve bars, restaurants and similar establishments. The reasons for this are largely obvious. These businesses often generate a large portion of their receipts in cash and, in many cases, several personnel (bartenders, waiters, cashiers etc.) may have the opportunity to handle the cash. As a result, such operations are considered to involve a greater propensity of hidden sales and other forms of tax evasion.1 Another factor is that many bars and restaurants are small establishments and often do not have the types of operating controls that larger businesses employ to monitor sales.
Over the last few months a number of determinations by administrative law judges (ALJs) and decisions by the New York State Division of Tax Appeals (DTA) have involved reviews of assessments proposed by the Department of Taxation and Finance against these types of companies. This article will discuss a handful of cases that illustrate the problems of compliance with the relevant rules and in dealing with these audits, J. Sahantadam2 (restaurant), 88-02 Deli Grocery3 (deli and grocery store), Jefferson Pub4 (bar and restaurant), J&L Donut Shop5 and Richmond Deli & Bagels6 (deli and grocery store). Rather than describe each of the cases in detail, however, this article will discuss common issues that the cases share.
