Court Opinion

ID: 2746691
Source: CourtListenerOpinion
Date Created: 2014-10-29 22:04:13.79599+00
Date Added: 2024-06-11T09:53:54.509440
License: Public Domain

STATE OF MICHIGAN

                              COURT OF APPEALS

BF ENTERPRISES, INC.,                                              UNPUBLISHED
                                                                   October 28, 2014
                Petitioner-Appellant,

v                                                                  No. 317278
                                                                   Tax Tribunal
DEPARTMENT OF TREASURY,                                            LC No. 00-440243

                Respondent-Appellee.

Before: SAAD, P.J., and O’CONNELL and MURRAY, JJ.

PER CURIAM.

       Petitioner appeals by right a decision of the Tax Tribunal affirming sales tax assessed by
respondent for the period May 1, 2006 to April 30, 2010. The Tax Tribunal concluded that
respondent’s sales tax assessment of $967,827, including interest and penalty, was based on
appropriate audit methods. We affirm.

        Before this Court petitioner argues that the Tax Tribunal erred in upholding the audit
methods respondent utilized in assessing sales tax on merchandise and prepared food items sold
by plaintiff.1 In the absence of fraud, review of a decision by the Tax Tribunal is limited to
determining whether the Tribunal erred in applying the law or adopted a wrong principle; its
factual findings are conclusive if supported by competent, material, and substantial evidence on
the whole record. Klooster v City of Charlevoix, 488 Mich. 289, 295; 795 NW2d 578 (2011).
Substantial evidence is that which a reasonable mind would accept as sufficient to support the
conclusion. Power v Dep’t of Treasury, 301 Mich. App. 226, 230; 835 NW2d 622 (2013).

       The General Sales Tax Act, MCL 205.51 et seq., provides that businesses are subject to a
six percent tax on retail sales. MCL 205.52(1).2 Businesses are required to keep complete

1
  Initially petitioner also challenged the sales tax assessment on fuel, but conceded in its reply
brief filed with this Court that respondent’s audit method was appropriate. Petitioner did
maintain, however, that we should remand for a recalculation of the sales tax assessment on fuel
if we do so on the merchandise and food assessments.
2
    MCL 205.52(1) provides:

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records of their sales and purchases. MCL 205.68(1).3 Here, the auditor testified that he
ordinarily examined financial records, such as invoices, check stubs, tax returns, ledgers, or
profit and loss statements, to verify a taxpayer’s reported figures. Despite several requests and
time extensions, petitioner only provided the auditor with purchase invoices and daily sales
summaries for two months, as well as tax returns for 2006 through 2009. The auditor did not
believe that respondent could trust any sales figures petitioner provided.

       Where the taxpayer fails to keep sufficient records or respondent has reason to believe the
records are inaccurate or incomplete, respondent may perform an indirect audit utilizing any
available information. MCL 205.68(4);4 By Lo Oil Co v Dep’t of Treasury, 267 Mich. App. 19,
42-43; 703 NW2d 822 (2005). The Legislature empowered respondent to make assessments on
the best information available as “[t]he state’s power to tax would be greatly eroded if the
respondent could not make assessments on available information where taxpayers do not
maintain proper records.” Vomvolakis v Dep’t of Treasury, 145 Mich. App. 238, 245; 377 NW2d
309 (1985). Respondent’s assessment is considered prima facie correct and petitioner had the
burden of proof of refuting the assessment. MCL 205.68(4); Vomvolakis, 145 Mich. App. at 245.

       Petitioner argues that the Tax Tribunal erred in upholding the sales tax on its prepared
food because the auditor did not separate taxable from nontaxable food sales. The Tribunal’s
decision was supported by competent, material and substantial evidence. Klooster, 488 Mich. at
295. The auditor (the only witness at the hearing) explained that the sales tax on prepared food
was charged because the prepared food was not sold by weight, which would have been
                 Except as provided in section 2a, there is levied upon and there shall be
         collected from all persons engaged in the business of making sales at retail, by
         which ownership of tangible personal property is transferred for consideration, an
         annual tax for the privilege of engaging in that business equal to 6% of the gross
         proceeds of the business, plus the penalty and interest if applicable as provided by
         law, less deductions allowed by this act.
3
    MCL 205.68(l) provides in pertinent part:
                 A person liable for any tax imposed under this act shall keep in a paper,
         electronic, or digital format an accurate and complete beginning and annual
         inventory and purchase records of additions to inventory, complete daily sales
         records, receipts, invoices, bills of lading, and all pertinent documents in a form
         the department requires.
4
    MCL 205.68(4) provides in pertinent part:
                  If the taxpayer fails to file a return or to maintain or preserve sufficient
         records as prescribed in this section, or the department has reason to believe that
         any records maintained or returns filed are inaccurate or incomplete and that
         additional taxes are due, the department may assess the amount of the tax due
         from the taxpayer based on an indirect audit procedure or any other information
         that is available or that may become available to the department. That assessment
         is considered prima facie correct for the purpose of this act and the burden of
         proof of refuting the assessment is upon the taxpayer.

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nontaxable. MCL 205.54g(1)(a), (6); MCL 205.94d(1)(a), (6). The auditor assumed all prepared
food was taxable because petitioner’s manager told him that prepared food was not sold by
weight and there was no information that it was sold by weight. Further, the auditor explained,
he could not use the two-month sales reports provided by petitioner to determine the prepared
food sales tax because the deli area used a separate register that was not included in the
information. The auditor determined the amount of prepared food purchases by petitioner from
vendor invoices over the sample period and added a 100 percent markup to determine total
prepared food sales to customers. The auditor explained that ingredients for sandwiches,
fountain pop, and hot coffee from the invoices were considered prepared foods to distinguish the
category from nontaxable categories, such as bottled pop and fruit.5

        None of the out of state decisions supports petitioner’s cause. They are not analogous to
this case, nor do they apply the law applicable to this case. They are simply not persuasive.
Here, petitioner did not provide adequate records and the auditor properly based his assessment
on the best available information as authorized by statute. The auditor explained that the method
of determining merchandise sales was finding the ratio of merchandise sales to fuel sales for the
two weeks that sales data was available and calculating the merchandise sales for the rest of the
audit period by using this ratio times the known fuel purchases from the vendors. Again, given
the limited evidence provided, the auditor’s method complied with the statutory scheme. MCL
205.68(4); By Lo Oil Co, 267 Mich. App. at 42-43.

       Further, petitioner did not present a witness or provide evidence to establish that its
merchandise sales were less than those determined by respondent. MCL 205.68(4); Vomvolakis,
145 Mich. App. at 245. Petitioner failed to demonstrate as factual error that unfairness or injustice
occurred because petitioner did not offer any evidence that the assessment method was actually
inaccurate. By Lo Oil Co, 267 Mich. App. at 43. The findings of the Tax Tribunal were supported
by competent, material, and substantial evidence. Klooster, 488 Mich. at 295.

       Affirmed.

                                                             /s/ Henry William Saad
                                                             /s/ Peter D. O’Connell
                                                             /s/ Christopher M. Murray

5
  Petitioner argues that the auditor created a ratio of gasoline sales to food purchases to estimate
food sales. However, the auditor created a ratio of fuel sales to merchandise sales to calculate
the sales tax for merchandise, which was separate from the sales tax on prepared foods. The
merchandise sales tax was calculated using the two months of sales data provided by petitioner.
Thus, the record demonstrated that the auditor used a methodology to distinguish prepared foods
from non-taxable food sales.

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