Like many other taxing agencies, Florida’s Department of Revenue has pushed for increased enforcement through sales tax audits using alcohol beverages and tobacco (ABT) purchase data to estimate total sales.
Auditing convenience stores has been lucrative for governments, with the state of Florida imposing average taxes of over $50,000 over a three-year period. Naturally, this has led small businesses to suffer greater tax liabilities, penalties and interest.
Seeing the financial benefit of auditing businesses that sell alcohol and tobacco, the state government of Florida set a goal to audit all convenience stores in the state over the next few years.
The owner of one convenience store was assessed unpaid taxes, penalties and interest dating back to 2010, and owed a total of approximately $79,000, according to the Florida Department of Revenue. In distress, the owner reached out to a local small business tax consultant to help solve his problem.
Why This Owner Had Such A Big Tax Liability
Estimates of the breakdown of your total sales between alcohol, tobacco and all other products are very important. Auditors use the ABT percentage of sales to estimate your total taxable sales, which determines whether or not you owe more in taxes.
The state auditors in this case were using a national average to predict the breakdown of sales at the owner’s convenience store – that average being roughly 50% of sales in alcohol and tobacco. The auditors’ estimate determined the amount of sales tax they believed he owed, as well as how much of the owner’s sales were exempt from taxes.
Based on their calculations, the small business owner owed approximately $79,000 in unpaid taxes, interest and tax penalties.
How The Tax Consultant Cut His Bill To ~$4,000
Unlike the average convenience store with approximately 50% of sales on alcohol and tobacco products, this owner’s store makes a much higher percentage in ABT sales. It is located in a touristy part of Florida, where vacationers buy more alcohol and tobacco than the average location.
The small business owner’s tax consultant looked into how the auditors examined his convenience store, and found that the incorrect percentage of sales assumption – among other issues – were at the root of the problem. The difference between the auditors’ estimated alcohol and tobacco sales percentage and the store’s actual sales breakdown was significant.
After his small business tax consultant appealed the auditors’ ruling and presented documentation of the store’s sales breakdown, his tax debt was cut to approximately $4,000.
Hard Work Paying Off Big Time
While many tax representatives advise individuals and small business owners to negotiate rather than appealing, this small business’s tax bill, interest and penalties were cut by almost 95%.
Rather than negotiating and accepting an offer that typically reduces your tax burden only slightly, the owner of this convenience store benefited from his tax advisor’s understanding of his unique business and hard work. In the end, he saved roughly $75,000.