Revenue Finds Taxpayer's Record Keeping Too Unreliable to Overturn Audit Results

Taxpayer sells flooring materials. According to the audit report, "[T]axpayer's primary sales medium is via [I]nternet sales." The audit report noted that "[T]axpayer did not maintain most records such as sales and purchase invoices." Despite Taxpayer's attempt to reconstruct its sales records, the audit concluded that "[T]axpayer's records were still incomplete."
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Because Taxpayer did not maintain complete and accurate sales records, the audit resorted to a projection methodology. This alternative is authorized under Indiana law. IC § 6-8.1-3-12(b) provides as follows:

The department may audit any returns with respect to the listed taxes using statistical sampling. If the taxpayer and the department agree to a sampling method to be used, the sampling method is binding on the taxpayer and the department in determining the total amount of additional tax due or amounts to be refunded. (Emphasis added).

Taxpayer makes objections too numerous to enumerate but the issue is whether Taxpayer has met its burden of demonstrating that the original assessment was incorrect. To that end, Taxpayer has provided 14 invoices evidencing sales to Indiana customers along with four pages entitled "Selected Fields [f]rom Sales Sample Month" which Taxpayer concludes are sufficient to establish that it owes approximately $200 in additional sales tax.

The Department has no reason to call into question the documents provided but must question whether the records are sufficient to establish that the original assessment was incorrect. Taxpayer's representative admits that "I may have missed some sales due to my bookkeeping...." and asks the Department to overlook what he admits is Taxpayer's "sloppy books for the past few years...."

Taxpayer asks the Department to rely on Taxpayer's scanty records, overturn the audit's reasoned conclusion, and arbitrarily determine an alternative assessment somewhere between $6,400 and $200 which is "fair and reasonable...." Taxpayer asks too much.

http://www.in.gov/legislative/iac/20120425-IR-045120174NRA.xml.html