In Murali, Inc. v. Testa, Ohio BTA, Case No. 2014-1169 (10/22/2014), the Ohio Board of Tax Appeals affirmed the Tax Commissioner’s sales tax assessment imposed on a convenience store. The BTA found, “where no competent and probative evidence is developed and presented to this board by the appellant to demonstrate that the Tax Commissioner’s findings are incorrect, the [BTA] must affirm the Tax Commissioner’s findings.” The taxpayer solely contested the percentage used by the auditor to calculate an allowance for purchases of soda and energy drinks with food stamps.
While the taxpayer found fault with the mark-up analysis, the BTA found that he ignored the fact that such mark-up approach was necessary due to the lack of complete and accurate records maintained by the taxpayer. This failure to maintain complete and accurate records entitled the Tax Commissioner to “gather information from other sources and estimate the amount of taxes which should have been collected and remitted.” Since the record lacked evidence to establish the specific items purchased with food stamps, the Tax Commissioner was permitted use “the standard 25% deduction.”
Taxpayers should closely review the mark up percentages proposed by the Tax Commissioner to confirm they are truly reflective of historical sales as it is very difficult to challenge such percentages if agreed to by the taxpayer during the audit. In addition, the taxpayer needs to confirm any agreement provides proper credit for other variables such as waste, spillage, theft, internal consumption, etc. If you have any questions regarding your mark up audit, please contact Steve Dimengo, Rich Fry, or Casey Davis.