After a recent audit, Mark Supples (owner Mothers Restaurant on Virginia Place in Buffalo NY) was told his business owed $1.8 million for 6 years of back taxes. William Comiskey, Deputy Commissioner for Tax Enforcement for the New York State Department of Taxation and Finance, says the state is taking a more aggressive stance on auditing cash businesses-including restaurants and bars-and that copies of every single guest check are required for a proper audit. Mark Supples' business produces about 1 million checks every 6 months so he understandably only keeps daily totals on record.
To address Supples' lack of 12 million individual guest checks, the state compared his business to the state averages for similar businesses. That average, however, is greatly skewed by the high cost of menu items in NYC.
Supples claimed that the state gave him the outrageous figure of $1.8 million so they could negotiate with him to $250,000 saying,
"The methods they use are very similar to methods that were used by La Cosa Nostra, ..also known as the mob. What they do is come up with a figure that will really scare you then they settle for a lesser figure so basically it's an extortion practice which is really quite effective because the figures they come up with are pretty scary."
So Supples went to tax court and against all odds successfully fought it.
He showed he needed every seat filled for 11 hours a day, 7 days a week, over the course of six years to owe the additional $1.8 million. The court sided with Supples who is now trying to make the state cover his $150,000 court fees.
The case drew a lot of attention to the methods the state is using to estimate taxes when individual guest checks are unavailable, but the important takeaway is that if you're able to keep those records, then do just that. It's the best chance you have at avoiding such an aggressive audit from the state.