Taxpayer Maintained Adequate records required by Law
In Fradco, Inc. v. Department of Treasury, Michigan Tax Tribunal, No. 409506, September 26, 2011, an assessment of Michigan sales tax against a grocery retailer was cancelled because the Department of Treasury's audit methodology resulted in imperfect estimates and was based on an incomplete sample of purchase invoices extrapolated over a four-year period. Furthermore, the Department of Treasury failed to consider inventory fluctuations and shrinkage that occurs in retail operations.
The taxpayer met its burden in challenging the assessment, as the taxpayer demonstrated that its source documents were adequate and well maintained to determine the sales tax due. The taxpayer's outside CPA testified that the taxpayer maintained receipts, purchase invoices, bills of lading, delivery receipts, and other records used to calculate annual and monthly tax returns.
The Department of Treasury has appeal the Tax Tribunal decision to the Court of Appeals.