I have owned several businesses within Placerville for several years with success. In February, I was contacted at home on a Friday evening by the California Bureau of Equalization (BOE) wanting to conduct a sales tax audit for one of my businesses. I agreed to the audit. The auditor asked me how much time would I need to prepare; my response was two or three weeks. If you have never been through an audit this is not asking for much. He then said next Thursday would be fine. I nearly choked on my tounge.
I agreed knowing the rest of the week I would not be able to focus on my businesses and would have to scramble to fullfill their needs. I contacted my CPA (Smith Maloney) and requested their help as they have always been there for us when needed. They offered an office and anything else the auditor would need to conduct his audit. The auditor said it would only take two days to complete. He (Thomas Thai) showed up to our CPA Thursday as agreed and started in. When he finished the first day he approached our CPA and reported his findings. She nearly fainted. She had tried to explain to him that he was taxing items that were exempt from California sales tax per Regulation 1671.1. She also told him that we had probably overpaid the state for the past three years in question. In reference I paid on average $90,000 per year to the state BOE.
On the second day he showed up to our business to complete his audit. I showed up around 1:30 p.m. and he was still at lunch. When he arrived he didn’t say much and continued his audit. We had to show him how we rang up discounted products and then he retreated to the back of the store to compile his data. At 3 p.m. he asked me to come back so he could explain his audit findings. With very little explaination he told me we owed $1,000 for unpaid taxes. I asked how he came up with this. Our register was collecting 7.52 percent when the actual tax was 7.5 percent for 2009. The register tax was set by the previous owner and we never checked to see if it was correct. My bad! Even though the BOE recieved their 7.5 percent they wanted the rest as well. Why? I have no idea. Then he mentioned our books looked excellent, (this is where it gets strange) he proceeded to turn the page and looked me in the eye and said you owe $13,000 … All I could do was mutter something like ah … umm … urgh … faaaa. I recovered from my shock and asked, for what? He said unpaid sales tax. I said this could put me out of business. He smiled at me and grunted something.
When I returned home I e-mailed retired Senator George Runner for a more logical explination. Runner is incharge of the BOE 2nd District. I had told him what had just taken place and that his auditor really never explained his findings and that he was very rude to my staff while there. Runner said that he would look into it and gave me his aid (Jim Kuhl) to use for information. I thought great, finally someone at the state level that is doing work for the people. I called Mr. Kuhl and explained our issue. He asked me how we processed our coupon sales and I explained the method. He told me that is the correct method and we should not have to pay taxes on those coupons. He also said if we recieved rebates or purchase discounts, that they to are not subject to California sales tax and we would not have to pay them as well. I thought things were rolling now and we were going to be fine. I have never disputed the fact that we may owe some sales tax but never this outragous amount. I e-mailed the Auditor and copied his supervisor (Jim Miller) with regard to my e-mail to Runner and call to Mr. Kuhl. The e-mail I recieved from the auditor sent me into shock, it said that I now owe $16,110. He increased the amount without any supporting documentaion. It was starting to get ugly!
I e-mailed them to clarify their findings with no success. I asked for more time to go over the three years of reciepts and coupons to locate items that should not be taxable and they agreed. This took several weeks as we had to work our businesses as well. After many sleepless nights, upset stomach, headaches, blurred vision and cursing, I continued to contact them for something in writting and to answer a few yes or no questions. They would not comply to my requests. Skip forward five months to July, and yes we are still fighting this bogus audit. We had a meeting with a state official, Mr. David Hofer, and his assistant Tina something. We brought all of our supporting documentation showing that we did not owe taxes for Purchase discounts, Coupons, and Rebates as they are not subject to California sales tax per their regulation 1671.1 (they write the regulations so they are interpreted in their favor). They asked me what percentage of the coupon rebate should be excluded, and I replied, maybe 30 percent. We discussed the purchase discount information and got little insight from either of them as they already had their minds made up.
We left our files with them and they said we should hear from them within a week. We also furnished them by fax more information to help support our findings. Four weeks later I had to contact Mr. Hofer by e-mail as he would never be in the office when I called, to see if he had sent our information back and what the final determination would be. Now into August I recieve a letter from the BOE and when I opened it, shock once again overwhelmed me. The amount was now $18,322. My usually professional letters to everyone involved were know Flamethrowers. I even had to e-mail the United States Attorney General, Eric Holder, to fill him in on the way California BOE treats their small business owner. We pay for their salaries, cell phones, iPads, gas, meals, etc. and get nothing in return. I have since sent in my appeal and have not heard a word from anyone at the BOE. This is the most corrupt form of Government I have ever been witness to.
I got my SRA Fire Tax/Fee last week. Guess who is in charge of collecting your hard-earned money? That is correct, the BOE. Oh yea, they are not elected to these jobs they are given to them with instructions to write regulations and enforce them at their descretion. I have had to sell my business in order to pay them off and I will never open any kind of business in this state again. Way to support small business growth; tax them into closing just to collect a paycheck.
Hangtown Discount Cigarettes Inc.