Restaurant owners angry over state audit methods

[The Straight Story]

Restaurant owners angry over state audit methods

David "Doc" Panaro and Dennis Nettina, owners of the Buffalo Tap Room & Grill in Tonawanda, have always prided themselves on their integrity. They run a clean business, keep meticulous records and treat their employees, customers and vendors with respect.

So when the state accused them of dodging roughly $330,000 in sales tax over three years, they were first scared and then angry. Now they're determined to fight.
....

The state also recently started using desk audits, in which they use third-party information to scrutinize whether businesses may be making more money than they're reporting. For example, the state can look at how many pizza boxes a vendor has sold to a pizzeria and if the number of boxes is more than the number of pizzas the company said it sold, the state can look closer to find whether tax evasion is the source of the discrepancy.

"If the state went through a normal audit process and determined that we owed money, we wouldn't fight it. We're not opposed to paying taxes," said Panaro.

Instead, he said he was told all of his paperwork checked out, but he didn't meet the state's standards for keeping "adequate records." The restaurant had failed to keep every paper copy of each guest's order receipt for the entire three-year period. That opened the door for the auditor to use "indirect audit methods" to estimate what he thought the restaurant owed.

The method of estimation the state used was to observe the restaurant's sales for a day, then compare it with the same date on a previous year. The previous year's reported sales were 25 percent lower, so the auditor took that percentage and multiplied it over each day's sales of the three-year period, deciding the restaurant did enough unreported business to owe an additional $330,000 in sales tax.

"They almost did me a favor by coming up with such a ridiculous number, because it's so obviously wrong," said Panaro.

....

The state used the same report in an audit of Mark Supples' iconic Allentown eatery Mother's, estimating that he owed the state a total of $536,589.45 in additional sales tax, penalties and interest.

He paid $149,000 in attorneys fees, plus the cost of forensic accountants, consultants and tax specialists, and won his case on the basis that the audit's estimation methods were "arbitrary and patently unreasonable."

http://www.buffalonews.com/2010/06/19/1088066/restaurant-owners-angry-over-state.html

[Better Today]

1. This makes no sense at all. All that is needed to resolve this issue is the

statement of deposits at the bank(s). Either they made that made that much money and deposited it somewhere or they didn't. Perhaps a check for cash deposits to a few key individuals, but primarily the business related accounts. Also checking vendor statements to see if any substantial change is cash purchases for the biz and/or, if fraud is suspected, a few key individuals. This isn't an unknown, lost, or un-locatable number, it is totally audit-able. Sounds like some fuckin' lazy auditors to me.

[girl gone mad]

2. Crack down unfairly on small businesses while giving generous tax breaks to big corporate cheats.

It's the American way.