Manufacturer/U.S. Govt. Supply ContractorEliminated approximately $450,000 in tax, interest and potential penalty based upon initial audit findings in a sales and use tax audit.
Our client was engaged in business as a manufacturer of aircraft parts for both commercial customers and the U.S. Govt. A prior audit by the Board of Equalization disclosed no unreported sales or use tax liability. Our firm was retained after the current auditor informed the taxpayer that they owed over $500,000 in unreported sales and use taxes. After our review, we determined that the prior auditor had erred in his audit findings and that the taxpayer had failed to properly report in future filing periods based upon the erroneous written advice of the prior auditor. The Board agreed and eliminated approximately $450,000 in potential liability for the taxpayer’s reliance on the erroneous advice.
Restaurant (Chain)Eliminated approximately $700,000 in tax, interest, and potential penalty based upon initial audit findings.
Our client operated a chain of restaurants. Each restaurant was a separate legal entity and held their own seller’s permit. The initial audit findings by the Board of Equalization for one of their locations resulted in an estimated potential $700,000 liability for unreported sales and use taxes based upon a mark-up of cost of goods sold. The BOE, convinced that the taxpayer was also underreporting at all their other locations, informed the taxpayer that they would be auditing all their other locations as well. We appealed the auditor’s findings and successfully reduced the taxpayer’s audit from by approximately $690,000 (98.5% reduction).
Restaurant (Single Location)Eliminated approximately $95,000 in tax, interest and penalty on appeal of initial audit findings.
Our client operated a single location restaurant that offered dim-sum Chinese food. The BOE selected the taxpayer for audit after making undercover cash purchases. After obtaining books and records from the taxpayer, the auditor determined that the taxpayer’s records were “inadequate” and based her audit findings on a partial day’s observation test and public comments she read on a social media website. We appealed, and at a Board-Member hearing successfully eliminated the entire portion of the audit based upon the estimated credit-card ratio method.
Seller of Industrial Pumping EquipmentEliminated approximately $30,000 in tax, interest and potential penalty based upon initial audit findings.
Our client sold industrial pumping equipment from a location on the East Coast of the United States. An auditor from the BOE’s New York District Office determined that a $300,000 pump sold to a construction contractor and delivered, via common carrier, to a job-site in Los Angeles was subject to CA use tax. Upon appeal, we were able to demonstrate that the construction contractor was the retailer of the pump as a fixture and the entire liability from that sale was removed from the audit.
Our Representation at BOE Board Meetings
John Paul Richard, Inc. - June 25, 2015
As a result of a BOE audit, our team identified several transactions within a block-test period (the same block-test period used by the BOE’s auditor to identify underpayments of tax) in which the JPR overpaid sales or use tax. The audit department agreed that the transactions we identified resulted in an overpayment of tax, but insisted that the overpayment analysis should be evaluated on an actual-basis instead of a test-basis. We disagreed and won on appeal before the Members of the Board of Equalization.
New Capital Seafood Restaurant - August 26, 2015
Our team of former BOE auditors successfully appealed the assertion by the Board’s audit department that the taxpayer had underreported their taxable sales by $675,397 in taxable measure and that a 10% penalty for negligence should be applied. During the audit, the Department concluded that the taxpayer’s records were inadequate and that the taxpayer was negligent in maintaining their books and records. They based this on an undercover credit card purchase by a “BOE employee”, their use of a partial-day observation test to evaluate the credit card to cash sales ratio, comments made by customers on a social networking website, and an evaluation of the taxpayer’s bank deposits. The amount of underreported taxable sales claimed by the audit department seemed significant at $675K, but this amount was relatively small as a percentage of total sales. The BOE auditor failed to follow the BOE’s own guidelines for conducting field observation tests and erroneously concluded that any difference noted (no matter how small a percentage) should be deemed sufficient evidence of underreporting. Initially, the District’s audit management and the Appeals Division supported the auditor’s findings. However, the case was appealed to the Members of the Board of Equalization, who agreed unanimously with our position that the taxpayer had properly reported their taxable sales and that they were not negligent in their recordkeeping.