Alabama business learns an expensive sales tax audit lesson

by Chuck November 21, 2012

“If they don’t pay their taxes, we’ll come after them,” an Alabama city councilman said after a local restaurant lost an appeal against a sales tax audit.

 sales tax audit

Unrecorded cash transactions at an Alabama restaurant earned the owner a $100,000 tax bill.

The Hoover, Alabama city council agreed to a settlement for $100,000 after the Jefferson County Circuit Court ruled in the city’s favor finding that the Top China Buffet was not keeping adequate records.

The city originally won a judgment against the buffet which was ordered to pay nearly $124,000 in back taxes and penalties. The city agreed to the settlement amount to end the dispute and commended the revenue department for its diligence and persistence.

The city of Hoover conducted a tax audit of the restaurant for the period from July 2007 to August 2010 and the investigator allegedly observed cash being accepted without being recorded. The auditor used an estimate to determined the restaurant owed $91,940 in unpaid taxes plus $31,923 in interest and penalties.

The restaurant owner accused the state of using a faulty method for estimating tax due in cases where records were not available, but admitted to owing the state more than $41,000 in unpaid sales taxes.

If they don’t pay their taxes, we’ll come after them.

Jefferson County Presiding Circuit Judge Scott Vowell said, “Even if all sales were reported, it is undisputed that the taxpayer did not keep accurate records required by Alabama law.”

The ruling also found evidence that the Top China Buffet changed hands in an apparent attempt to avoid the tax bill. The judge disallowed the change in ownership as a tax-negating tactic finding that it was not an “arm’s length” transaction because the restaurant never closed and did not change names.

“It sort of sends a signal out to local merchants that we want them as good citizens as long as they pay their taxes,” said councilman Jack Natter.

Charles F. Spielmann

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