Percentage Discounts

A few months ago, Dining Date Night began offering customers a 30% discount at various restaurants in Toronto.  In order to get the discount, a customer books a reservation on a website and pays a $10 fee to Dining Date Night.  When the customer visits the restaurant, 30% of the total bill (before taxes) is deducted as a discount.  This type of promotion is relatively good for both the consumer and the restaurant that provides the discount, because the restaurant can restrict the hours when reservations may be taken.

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Groupon Taxes

I’ve written a couple of articles about Groupon on my sister blog, Canadian Restaurateur.  This is part of a series that will cover accounting for Groupon certificates, setting up your Point of Sale (POS) system to properly track coupons and discounts, using QuickBooks to enter Groupon transactions, examining the tax treatment of Groupon certificates (this one), and finally, determining whether your restaurant should consider Groupon.

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Beware Harried Ontario Tax Auditors!

When the Ontario government repealed the Retail Sales Tax (RST) in favour of the new Harmonized Sales Tax (HST), it transferred audit and collection activities to the Canada Revenue Agency.  Unfortunately, that doesn’t mean Ontario restaurants can forget about the old RST!

Ontario is still responsible for auditing the old RST for periods up to June 30, 2010.  Under the Statute of Limitations, Ontario has up to four years to audit the RST.  Actually, they can go back more than four years, if they can show fraud or misrepresentation or if they obtain a waiver from the taxpayer.

Many of these Ontario auditors will be transferring to the CRA in 2012.  So, they are racing to complete audits of most Ontario RST vendors.  This is especially true for Ontario restaurants, which have always been a target of the Ministry of Revenue.

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Taxing Theft

We all know that some amount of alcohol will be pilfered.  Don’t you love that word?  Pilfered.  Sounds like a mere pittance.  It is anything but.  As a rule of thumb, the cost of the theft will be about three times the cost of the alcohol that is, ah, pilfered.

If you’ve been following recent posts on my sister blog, Canadian Restaurateur, you may have noticed a theme. Theft.  All restaurateurs know that theft is a significant issue that requires our constant vigilance.  The cost of the stolen product is bad enough, but if you also have to pay tax (plus penalties and interest) on the retail value of the stolen product,  it becomes a huge issue.  Everyone knows it isn’t right that a restaurateur should have to pay tax “as if” the stolen alcohol had been sold. Unfortunately, that isn’t the way it works in most tax jurisdictions.

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U.S. Tax Audits Draw Anger

So, what do we care about U.S. tax audits?  Plenty.  What happens in the U.S. (and abroad) tends to happen in Canada, too.

Recently, the New York State Department of Taxation and Finance hired 300 additional auditors in an effort to generate an additional $200 million of sales tax revenue.  While they say they’re just trying to make the system fair for all taxpayers, the reality is that auditors are becoming increasingly aggressive, and restaurants are high on the list of their targets.

As described in a recent article, Mark Supples, the owner of Mother’s restaurant in Allentown, spent five years and more than $150,000 fighting the state over claims that he owed more than $535,000 in sales taxes.  He commented, “They come in with the attitude that we’re automatically guilty, that we’re criminals, and that it’s just a question of how much we’ve stolen.”

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Perfect Pour = Unreported Sales (and Taxes)?

Huh?  Do you mean that if I never over-pour drinks, my establishment can still be accused of under-reporting my sales (and taxes) during an audit?  That can’t be right!  Can it?  Unfortunately, it IS true for almost every restaurant and bar in Canada!  Today’s post explains how this happens and what you can do about it.

Most restaurants and bars use shot glasses or portion control pourers to accurately measure the amount of liquor that goes into cocktails, mixed drinks and shots.  Meticulously training bartenders and monitoring pouring, you’re fairly confident that your pouring is fairly accurate, if not “perfect”.  Even if it is, your establishment will be over-pouring all of your liquor drinks by at least 4%!

Why?

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The Real Threat

Despite what has been published in the press and disclosed by the CRA and the Ministry of Revenue Quebec (MRQ), the use of zappers has not reached epidemic proportions in the restaurant industry.  Zappers have been around since the mid-1990s, though most of the usage seems to have been confined to Quebec.  In fact, the vast majority of the convictions for sales tax evasion have occurred in Quebec.  For background on the use and abuse of zappers, please read this, this, and this.  The unfortunate thing about all of this attention is that it may draw our attention away from a far larger threat to our operations.  The indirect audit approach.

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