Part of our mission at Brown Goertz & Co is to educate. While we are exhibiting at the TRA Marketplace 2017 show held July 9th and 10th at the Kay Bailey Hutchinson Convention Center, we will be offering six free training sessions. The subject of the training is “Understanding The Texas Mixed Beverage Tax”. The course is 45 minutes long and participants will learn how to protect their business from audits that result in tens of thousands—even hundreds of thousands of dollars in tax, interest and penalties owed.
Beginning October 2012, the Audit Division of the Comptroller’s Office very quietly and without notice changed their policy related to Mixed Beverage audits. The policy change almost guarantees that if you are selected for an audit, you will be assessed a liability.
Since the inception of the tax in 1971, the auditing agency has used the alcoholic beverage depletion analysis (ABDA) as its estimation method. The agency’s take on this is that most businesses responsible for mixed beverage gross receipts tax are cash intensive and there is the possibility of having problems with misappropriated sales and inventory pilferage. In addition, source records may be incomplete, non-compliant, or fraudulent. The ABDA estimates the total amount of mixed beverage sales based on the quantity of alcoholic beverages purchased.
Prior to the policy change in October 2012, if a taxpayer with good records had reported within 7.5% of what the auditor estimated, no liability was assessed. If the taxpayer had bad records, the allowed variance was 5%. This was referred to as the “error rate variance policy”.
The policy change in 2012 did away with looking at those error rates and set a materiality threshold instead. Now, the auditor calculates the estimated tax due which includes a 5% allowance off the assessment. In essence, the agency believes that they are building in the error rate variance into the estimate. If the resulting tax due is over $2,000, tax is assessed.
Your Business Represents a Lucrative Revenue Stream to the State of Texas
To the State of Texas, your business represents a revenue stream, plain and simple. Their job is to maximize that stream, and mixed beverage tax audits are one of their primary tools.
Mixed Beverage tax audits have nothing to do with what actually happened and everything to do with what you can prove happened. All the variables necessary in the calculation must be documented correctly by you, the taxpayer and analyzed properly by the auditor, or you will be assessed additional tax. This presents a couple of problems. One, many operational decisions that are made by owners, operators, general managers and even bartenders can impact any one of the variables used in the audit and create tax due. The second problem is auditor error. Auditors consistently make mathematical and analytical errors that cause large audit assessments. Between your burden to document and prove every data point used in an audit along with poorly trained and careless auditors, it’s not hard to imagine how a Mixed Beverage tax audit can be wrong. Unfortunately, the burden to prove that the audit is in error is on you, the taxpayer and in many cases the assessments are detrimental to the business.
Attendees can register at the show at booth 515 or can email us at clientservices@BGCtax.com to reserve a seat.