The Alabama Tax Tribunal affirmed that a convenience store operator (taxpayer) was properly assessed sales and use tax and fraud penalties under audit. The taxpayer operated two cash registers, one computerized and one not. A Revenue Department auditor testified that the taxpayer provided incomplete purchase records, bank statements and point-of-sale records for a large portion of the audit period and no records from the other register. Since not enough information was available to conduct a direct audit, an indirect audit was conducted. The Revenue Department requested records from the taxpayer’s wholesale vendors and applied a 35% markup to the purchase amounts. The auditor concluded that the taxpayer underreported its sales by approximately $15,000 per month. The auditor testified that the Revenue Department assessed a fraud penalty since the taxpayer’s own records showed that it underreported taxable sales, since the taxpayer consistently underreported on a monthly basis, and since the taxpayer provided no records to show the total amount of tax collected and remitted. When a taxpayer fails to provide complete sales records, the Revenue Department may compute the tax liability using the most accurate and complete information obtainable. Since the taxpayer failed to maintain and produce complete sales records for the audit period, the Revenue Department applied a 35% purchase markup. The 35% markup is based on IRS information regarding percentage markups of gas stations and grocery stores. The Alabama Tax Tribunal had previously upheld that that percentage is reasonable. The burden of proof is on the taxpayer to prove that an audit assessment is incorrect. The taxpayer argued in its appeal that the 35% markup was improper but failed to appear at the trial to present evidence of another markup percentage. For the above reasons, the Tax Tribunal concluded that the Revenue Department did not err in using the 35% markup. Additionally, the Tax Tribunal found that the Revenue Department met its burden of proving fraud.
(Siya Om, Inc. v. Alabama Department of Revenue, Alabama Tax Tribunal, No. S. 20-405-JP, January 12, 2023)