Documenting spoilage in a sales tax audit – If you purchased items that cannot be sold due to spoilage or damage, you need to document it as such. Otherwise, you might be liable for the sales tax.
Transcript
Markups, spoilage and sales tax audits. I’m Mansoor Ansari with Nexus Tax Defense. The reason why we’re going to discuss markups today is because that’s just an estimate of what the sales tax auditor believes that you should have made. For example, if you bought $100,000 of the merchandise in a specific month, the sales tax auditor might say that you should have had a profit of $25,000 because your markup is 25%. But that’s not always true.
Let’s assume you have spoilage. What spoilage really means. All it means is that something that you purchased could no longer be sold. So if on your tax return, it states that the gross purchases were $100,000 and the auditor says that you should have had a 25% markup, but you weren’t able to sell all of your product, what’s going to end up happening is that you’re going to end up paying sales tax on product that you never sold. So for that reason, it is really important for you to document all the spoilage, whether it’s food, drinks, or anything else that was no longer sellable, and make sure that the auditor gets this information prior to your audit. Thank you.
