State Tax Day - Current,S.15New York—Sales and Use Tax:

The use of an external one-day observation test audit to estimate the New York sales and use tax liability of a corporation that operated a grocery store and deli and the corporation's president was proper because the taxpayers failed to maintain adequate books and records to conduct an audit. In response to the Division of Taxation's proper written and oral request for books and records, the taxpayers provided some purchase invoices, bank statements, sales tax returns, the corporation's federal income tax returns, and day books that summarized the corporation's sales for the audit period. No cash register tapes or other source documents to substantiate sales were provided to the auditor. Clearly, the records provided by the taxpayers were insufficient to verify gross and taxable sales and to conduct a complete audit from which the exact amount of tax due could have been determined. Thus, it was proper for the division to resort to the use of a one-day observation test. Also, New York courts have upheld the use of observation tests as an external index and have found it reasonable to extrapolate the results of a one-day observation test over a multi-year audit period.

Except for adjusting the division's assessment to reflect taxes due based on 12 hours of daily operation, as opposed to 24 hours, the taxpayer failed to demonstrate that the audit method was unreasonable or that the assessment was erroneous. Accordingly, the taxpayer's petition was dismissed. Further, the imposition of penalties was upheld because the taxpayers failed to provide evidence or arguments sufficient to constitute reasonable cause or support for the abatement or cancellation of the penalties imposed.

88-02 Deli Grocery Corp., New York Division of Tax Appeals, Administrative Law Judge Unit, DTA Nos. 823291 and 823292, September 22, 2011,