Ruttman told revenue agents that he prepared and filed the sales tax returns and they were accurate to the best of his knowledge. He also informed the agents that his business was profitable. The agents found the statement surprising because of Ruttman's previous history with the department. He pled guilty to one count, received a suspended imposition of sentence, was placed on probation and required to perform community service and pay restitution. When the cost of goods sold for a specific period is divided by the cost of goods percent, the amount of gross receipts for that period can be determined.
Gross receipts multiplied by the sales tax rate yields the sales tax to be paid.
If the cost of goods percent is increased, the amount of gross receipts and the corresponding amount of tax due is reduced. The agents also obtained his IRS tax returns for the audit period. The agents discovered that in 1993 Ruttman reported more gross receipts to the IRS than to the State. They also discovered that his actual purchases exceeded the amount he reported to the State in gross receipts. To determine the cost of goods percent, a comparison is made between the menu cost of a meal and the ingredient cost of the same meal.