AL – Convenience Store Operator Properly Taxed
ALABAMA: A convenience store operator was assessed properly under the Alabama sales and use tax law on its retail sales. The taxpayer failed to maintain adequate books and records and didn’t correctly report its sales. The taxpayer did not provide thorough information about its purchases, and, as a result, the Alabama Department of Revenue determined the tax liability using the purchase markup method. Markups are the ratio of gross profit to the sales price. For instance, if you have an item that costs $4 and you sell it for $8, your gross profit is $4, which is the markup. The markup percentage equals the gross profit divided by the sales price or 4 divided by 8, which is .5, or 50 percent. The taxpayer argued that the percentage markup was skewed because the auditor did not consider various factors, including that the store did not sell beer and that it lost money on its hot food bar, nor was the population of the town considered. However, the taxpayer provided no records to support these contentions. The Department of Revenue found that using a 35-percent markup was reasonable and, thus, the assessed sales tax was affirmed.
Finally, the taxpayer was liable for a fraud penalty. The Department of Revenue determined that because of the greater than 50-percent underreporting, consistent underreporting, failure to keep adequate records, and failure to disclose a second bank account supported the finding that the department correctly applied the fraud penalty.
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