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Archive for February, 2011

During a typical audit, the tax auditor interviews the taxpayer about the business operations and various factors that influence sales, such as portion standards, selling prices, theft, spillage, own-use and over-pouring.  If the auditor exercises sound judgment, the taxpayer’s assertions will be considered prima facie evidence that the assumptions are reasonable in the circumstances.  These assumptions form the basis for most audit assessments of restaurants and bars.  What if they’re just plain wrong?

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So, what do we care about U.S. tax audits?  Plenty.  What happens in the U.S. (and abroad) tends to happen in Canada, too.

Recently, the New York State Department of Taxation and Finance hired 300 additional auditors in an effort to generate an additional $200 million of sales tax revenue.  While they say they’re just trying to make the system fair for all taxpayers, the reality is that auditors are becoming increasingly aggressive, and restaurants are high on the list of their targets.

As described in a recent article, Mark Supples, the owner of Mother’s restaurant in Allentown, spent five years and more than $150,000 fighting the state over claims that he owed more than $535,000 in sales taxes.  He commented, “They come in with the attitude that we’re automatically guilty, that we’re criminals, and that it’s just a question of how much we’ve stolen.”

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Huh?  Do you mean that if I never over-pour drinks, my establishment can still be accused of under-reporting my sales (and taxes) during an audit?  That can’t be right!  Can it?  Unfortunately, it IS true for almost every restaurant and bar in Canada!  Today’s post explains how this happens and what you can do about it.

Most restaurants and bars use shot glasses or portion control pourers to accurately measure the amount of liquor that goes into cocktails, mixed drinks and shots.  Meticulously training bartenders and monitoring pouring, you’re fairly confident that your pouring is fairly accurate, if not “perfect”.  Even if it is, your establishment will be over-pouring all of your liquor drinks by at least 4%!

Why?

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