Accuracy-Related Penalties Assessed Were Upheld
In Anderson v. Department of Treasury, Michigan Tax Tribunal, No. 359228, March 28, 2012, the operators of a Western tack shop, were liable for an assessment of Michigan sales tax because they could not substantiate their nontaxable sales. The petitioners engaged in four lines of business: a retail tack shop, "gypsy sales" (flea market and carnival sales), vehicle and horse trailer sales, and horse sales. Petitioners' tax records were allegedly destroyed in a fire. Though circumstantial evidence is generally accepted in this instance, the Tax Tribunal found that neither petitioner was able to recall relevant transactional details to substantiate their claims. In regards to their sales of horses and vehicles, the petitioners could not determine the number of sales made to out-of-state customers that were consummated outside of Michigan. The petitioners claimed that use tax must have been paid by the buyers on the in-state vehicle sales, or else registration and titling of the vehicles could not have occurred. However, the Tax Tribunal refused to accept the unsubstantiated inference. Overall, the Department of Treasury was reasonable in basing its assessment on the information obtained from petitioners and their CPA.
Furthermore, the accuracy-related penalties assessed against the petitioners were upheld, as they could not demonstrate reasonable cause for their failure to collect and remit sales tax. Though the petitioners relied on representations made by an employee of the Secretary of State's office and a state veterinarian, reliance on non-tax professionals does not constitute reasonable cause.