Audit Methodology 101- What is a Credit Card Test of Sales?

The use of a credit card test has become an increasingly popular audit methodology employed by the California Department of Tax and Fee Administration’s (CDTFA) audit staff. It used to be primarily utilized to estimate sales for restaurant and bar establishments but we are finding that the use of this test is becoming more prevalent in other industries as well.

The increased use of this methodology is for good reason. When preformed correctly, the test can produce a very accurate computation of a business’ gross receipts. The key to performing the test correctly, as with others, is making certain that the […]

Restaurants and Caterers Beware – Facility Rental Charges are Generally Subject to Tax

Restaurants commonly make their banquet rooms available for large parties to hold special events such as birthday parties, wedding receptions, and retirement parties. Most restaurants, however, are unaware of the potential sales tax assessment that may accompany the rental charges for these facilities.

A common practice is for the restaurant to offer the rental of its banquet room for a flat fee and then separately offer an abbreviated menu from which its customers choose the meals for their guests. The food and drinks are often served at a price per person under these arrangements.

Restaurants generally understand that food and drinks served […]

Board of Equalization Audit Procedures Put Bars at Risk of Overstated Audit Liabilities

Fotolia_93991126_S_Restaurant_tableThe Board of Equalization (BOE) often selects bars for sales and use tax audits. The fact that bars can deal with a significant amount of cash, and can often times have more relaxed financial controls than other types of businesses, make them an ideal target in the eyes of the BOE. In the audit of a bar, an auditor will generally examine the business’ sales records and then seek to verify the recorded amounts with a markup analysis. The markup analysis contains intricate computations and the auditor’s inability to identify certain intricacies […]

Are Tips Subject to Sales Tax in California?

Fotolia_38665300_S_Coffee with tipIf you’re a restaurant owner that’s been through a California sales tax audit, you probably asked the auditor the above question at some point during the process. The answer you probably received was, “It depends,” or, “Sometimes.” If you’re lucky, you didn’t get further clarification in the form of an audit bill for tax on your employees’ tips.

The underlying principle is deceptively simple: if the amounts of your tips are optional (left up to the customers), and all of the tips are actually distributed to your employees, the tips are […]