California—Restaurant Operator Liable for Tax on Unreported Sales Made by It’s Concessionaire.
California– Restaurant Operator Liable for Tax on Unreported Sales Made by It’s Concessionaire
A restaurant operator (taxpayer) was properly liable for California sales and use tax on unreported taxable sales made by another entity because the entity was operating as a concessionaire on the taxpayer’s business. Generally, a prime retailer may be held jointly and severally liable for any sales and use taxes imposed on unreported retail sales made by a retailer operating as a concessionaire on the prime retailer’s retail business premises. Further, a permit holder who fails to surrender a seller’s permit upon transfer of business shall be liable for any tax, interest, and penalty incurred by the transferee if the permit holder has actual or constructive knowledge that the transferee is using the permit in any manner. In this matter, the taxpayer entered into a lease agreement with another entity to operate the taxpayer’s restaurant and bar using the same business name, location, furniture, equipment, etc. previously used by the taxpayer. The California Department of Tax and Fee Administration (department) audited the taxpayer and issued a Notice of Determination for unreported taxable sales from the restaurant business based on the difference between reported taxable sales and bank deposits for the liability period. The taxpayer argued that it was not liable for the entity’s tax liability because the entity did not operate the restaurant as its concessionaire. Further, the taxpayer argued that it notified the department of the transfer of the business to the entity, and therefore, its liability should be limited under the applicable statute. However, it was noted that the taxpayer was liable for the tax applicable to the unreported sales made by the entity because the taxpayer knowingly allowed the entity to operate under the taxpayer’s seller’s permit. Moreover, the evidence established that the taxpayer did not transfer or sell its business to the entity, but instead retained its business and required the entity to operate it. Therefore, the entity operated as the taxpayer’s concessionaire, making the taxpayer liable for the taxes owed on the unreported retail sales attributed to the entity. Accordingly, the taxpayer’s protest was denied
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