We have had a substantial increase in the owners and operators of Tavern’s, Bar’s and similar establishments coming to our office with the same complaint: “The Illinois Department of Revenue has just presented me with an enormous bill for Sales Tax. I’ll never pay this. They have just put me out of business. What can I do?”
Wake up call to an industry, we do a fair amount of work against the Illinois Department of Revenue, particularly through Administrative Hearings. The word we are getting “off the record” from the State employees pursuing Tavern-type businesses is that the State of Illinois has discovered a lucrative area to conduct its audits and it intends to continue to conduct these audits against this industry until this industry is no longer providing big payouts.
Based on what we are seeing with these audits the State is not simply limiting itself to short periods of time, (a typical audit is for a 30 month period) and the State is not limiting its audits to “one per customer”, if the State is able to get money out of a tavern they will follow up with another 30 month audit of the immediately subsequent period.
By far the largest portion of the audit liabilities which the State assesses against taverns are liabilities for Sales taxes, although liabilities for income taxes may also result. Sales taxes are due from taverns regardless of whether the business makes money. If the tavern sells anything it very likely owes sales tax and the liabilities add up quickly. The information that the State gets from the audit is then shared with Federal authorities, so that after getting your first headache from your State tax bill, you can have another one when you get hit with a “big fat” Federal tax bill.
To make sure the resulting headache is big enough for you, the State of Illinois has a twenty year statute of limitations on most of its tax assessments and our experience has been that the State is not at all easy to settle with after an assessment is made. If you own things or make money, they expect you to pay, pay and after that, keep paying.
Like everyone else, members of this Law Firm are not not inclined to cry ourselves to sleep over the problems experienced by major tax cheats. We do however have empathy, and lots of it, for people who have been in business for decades, who have worked hard but done business and kept books in the “old fashioned way” and who have failed to adjust to the new realities of their tavern business world and how that world meets up with a State government which is on an extremely “high calorie diet”.
Make no mistake, this gold mine of non complying taverns which the State is voraciously pursuing is operated by “grandpa and grandma” or their immediate progeny who are, on the whole, 50 years of age or older. This is a crowd which generally is not great with computers, if they can use one at all, and who are not sophisticated in bookkeeping and business, despite the length of time their family or their establishment may have been in business. They also are the people who run that well-established and always romanticized icon, the neighborhood tavern.
Take my word for it, when the Illinois Department finishes the work it is currently on track to perform, there will be far fewer of these meeting places. Far fewer. Also, make no mistake about, it the tax liabilities which are being assessed in these audits are ordinarily more than the life savings of the tavern owners, or at least amount to a substantial portion of their life savings. And their life savings it will be, because, after an audit, the liability which results from non payment of State sales tax is ordinarily assessed against the tavern owners personally and hangs over their financial world like radioactive fallout, greatly limiting the financial opportunities available to the business owners. If they spent the last 30 years paying off the building which houses the tavern, they will be very likely waving bye bye to that, it will be State property in no time. Normally, for every dollar of income the State determines you didn’t pay sales tax on, if you are only subject to the routine State and Federal assessments which result, you will pay at least a dollar, or more, in tax, penalty and interest.
So here is a piece of free legal advice because, like most other people, we hate to see other people in pain. As you probably know, your liquor suppliers are require to provide the State of Illinois a statement of how much money your business expended in purchasing liquor, beer and other alcoholic products for sale on your premises. If you have maintained your books and records in a manner where it is difficult to tell whether the sales figure you used when reporting your State sales tax is accurate, the State is allowed to use its own multiplier. The State’s calculation may be appropriate, even generous in some situations, in others, it may in an overstatement of sales. As a general proposition, the State will calculate your tax based on a sales figure of three (3) times what you paid for product. They multiply your purchases by three and you pay sales tax on the resulting “sales” figure.
Needless to say there are angles on the matter and some of the “harsh edges” can be taken off an audit and other matters if you work with a law firm such as ours. But we would just as soon work with you under more positive conditions. Please pay attention to the way your industry has changed. Many of your competitors have “gone corporate”. They have computer systems, tax departments and other things in place to keep their tax liabilities under control. They are franchises. If you run a tavern, your business owes sales tax and some other taxes whether it is making any money at all. Don’t lose the things you and your family have worked for years to get. Try to keep accurate records, and if you are unable to do so, remember the “three time purchases” rule of thumb. It could save you a lot of headaches.
Copy write 2012 Thomas W. Lynch P.C.
