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How do you fight against the state board for sales taxes. I run a restaurant and we do OK. The state of Alexandria audited the restaurant's last 3 years (2007,08,09) and said we run a very very good business and overstated our sales by a lot. They came by one weekend recently (12/2010) and we were having a good weekend, around (80 fri, 100 sat, 100 sun). These were all Christmas parties and they estimated the last 3 years based on this weekend. They said we gross 15000-20000 a weekend when it is really about 3-7k a weekend and sometimes ZERO. We do not really keep good records of how many people come in to dine so they said that they have to go by their estimates. Without good records, HOW CAN WE FIGHT THE STATE AND MAKE THEM LOWER THEIR ESTIMATES?? They want $250,000 for these 3 years!!! I would have to go bankrupt.
1st: Call a tax attorney - that's the type of lawyer you need right now. 2nd: Invest in software and POS systems to run your business. I have a take out restaurant so in the event of the audit they can't ESTIMATE. Plus I'm a bookkeeper and payroll clerk so I keep up on tax law. The IRS has formula estimates for every type of business and since most restaurants hide money their estimates will hurt you without proper documentation. 3rd: Play by the rules with technology and bookkeeping to back it up or they'll screw you. Sorry
Start by talking to the auditor and point out that these were not typical weekends (you wish they were) and ask what the procedure is for filing a formal appeal if he won't reconsider. There should be something on the audit findings papers on how to appeal. If you can't get this sorted out with this auditor, ask to talk to a supervisor. Your not keeping good records means you contributed to this mess, but with a little luck some reasonable person at the state will help sort it out. Good luck.
Without good record keeping, this will just be the start of your problems. They will likely notify the California Franchise Tax Board and the IRS. If you don't have a complete and accurate records of all customer purchases, employee pay, and expenses, they will also likely high ball your tax bills.
Its not the number of patrons but if you don't keep good records of your sales, the state bases their audits on the amount of merchandise you buy unless you can show your food losses etc. they will accept that the food you purchase turns into $'s at the cash register I had a man asking my advice on his audit and I thought the cash register tapes were the basis but that is not necessarily the case especially when you don't keep good records
It isn't a matter of keeping records of "how many people come in." It's a matter of keeping records of your SALES. If you're not keeping "really good records" there, you have a problem.