Massachusetts Department of Revenue “Total Makeover” Part II

What is it with the Commonwealth and Register Tapes?

Springfield, Massachusetts, at the time of this writing, is ranked by the FBI as the 12th most dangerous city in the United States.  Sobering stuff.

The economic condition of the region is of equal rank.

Yet the Commonwealth of Massachusetts Department of Revenue truly believes, that there is a “flotilla of funds” (this writer actually used that in a DOR appeal!) floating through the streets of Springfield, and conveniently settling into the cash register of every bar and restaurant in the City.  Now that is simply not happening.

What evidence do we have to substantiate this?  Well, we’ve been there, frankly.  The infamous “no sale” key, located on every traditional cash register, is the source of concern.  As most fellow practitioners who ever represented a restaurant owner before the Commonwealth on a meals tax audit can attest, the DOR believes that the “no sale” key has but one purpose – to open the register for the purpose of providing change to a customer based upon a sale that will not be recorded into the register.  Period.  The DOR auditor will then average out a cost per transaction, and then attribute that cost to every “no sale” transaction.  Thus, if that average is $6 per transaction, and there are 40 per day (open 10 hours per day, or four “no sales” per hour), that means $240 of unrecorded sales per day.  If the shop is open 7 days per week, the DOR will have no issue assessing delinquent meals tax on over $85,000 per year, to say nothing of the pending unreported income assessments.  Naturally they will then expand the scope to include other years.  With interest and penalties (of course), this turns into real money.

Did we miss something?  Seriously.  Who owns the cash register?  Are cash registers regulated by the State?  Are they state property, and hitting a “no sale” key is considered “tampering?” Are they wired into some kind of data mining system, and opening the cash register, simply because it’s yours and you want to, triggers some kind of makeshift financial Red Flag?

In my humble opinion, store owners should be able to open a cash register, just because they enjoy the smell of U.S. currency.  Can it not be habitual, like tapping your pen?  Can a store owner be paranoid of thievery, always checking the register?  Shouldn’t they be able to open a register to remove what they believe to be excess funds in the register?  Remember, Springfield is the 12th most dangerous city in the United States, by FBI ranking.  Thus, is keeping money in the register really prudent?  And should it cost $8 every time you want to see your own money, on your own property, in your own register? 

Smoking is a bad habit.  Habitually opening a cash register should NOT be!

What about tipping out wait staff?  Is it okay to do it hourly?  Must the owner wait by the end of the day?  Is tipping out wait staff regulated by the Commonwealth also?

Again, in this writer’s opinion, assessments based upon “no sale” transactions should be fought vigorously (if the client agrees, of course) at the audit level, and up the chain to appeals.  Further, this writer is not entirely convinced that the Internal Revenue Service would support this type of deficiency assessment.  Having represented many, many restaurants in examinations, this practitioner has personally never seen a “no sale” analysis used by the Internal Revenue Service.  Food for thought – Form 8275.

Suggestion to the Commonwealth?  Unless the case is egregious (i.e., more “no sales” than actual transactions, for example), reconsider how the “No Sale” Analysis is used.  As it is currently used, it has no basis in fact, does not take the reality of life as a small business owner into account, and frankly, it’s fictitious, unfair and inappropriate in its application.

This entry was posted in Audits, IRS, MA DOR, Sales Tax, Tax Representation. Bookmark the permalink.

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