Tax Based on Gross Up Method Not Allowed When Records Exist
In Liquor Basket Party Store, Inc. v. Department of Treasury, Michigan Tax Tribunal, No. 449145, March 5, 2014, the Tax tribunal upheld a sales tax because the taxpayer failed to show that its gross-up method was more accurate than the Department of Treasury’s reliance on the taxpayer’s own Z-ring tapes.
This case is the latest in a series of cases coming out of the Tax tribunal. The decisions are inconsistent and provide limited guidance to taxpayers because of different facts and circumstances. This case is different because in the others, the Department of Treasury will use an "indirect method" to determine the tax because the taxpayer did not have adequate records. Here the taxpayer wanted the Tax Tribunal to use a gross-up method.
Though the gross-up method is a valid way to determine a taxpayer’s sales tax liability, there was no need to resort to the method in the instant case because the actual sales data was available from the taxpayer’s Z-ring tapes. The relevant statutes indicate that the Legislature intended to give the department the power to base assessments on the best information it could obtain. Furthermore, the taxpayer had no right to choose a particular audit method when it failed to maintain adequate records.