How Does the CDTFA Audit Process Affect Restaurants in California?

The CA Department of Tax and Fee Administration is charged with the responsibility of collection sales and use taxes within the state. Restaurants are involved with direct food and beverage sales in place, as they deal with most of them, and many of them being taxable, they are directly under the CDTFA. The agency makes sure the restaurant owners accurately collect and provide reporting and remittance of taxes, especially where tax half-section or mixed transactions exist.

Why Are Restaurants Frequently Targeted for CDTFA Audits?

Restaurant businesses are regarded as cash-intensive, which makes them more prone to errors in reportingly as well as underpayment. The CDTFA is quite inclined to audit restaurants due to uneven reported sales, anomalies in vendor invoices and reported income, or statistical violations of the industry standards. Experienced IRS tax experts, including ( former IRS tax agent, a former auditor, and California sales tax attorneys).

On most occasions, the notice of an audit can be occasioned by minor flaws in calculations or the lack of proper record-keeping.

What Typically Triggers a CDTFA Audit for a Restaurant?

An audit may be the result of a number of factors:

·         Underreported sales: There is an anomaly between gross receipts reported and deposits made to banks.

·         Large voids or cash amendments: There are too many voids that may be suspected.

·         Comparison of suppliers: Comparisons between the buying data used by the restaurant and the vendor reports of vendor sales are obtainable.

·         Unstable submission of tax returns: There will often be amended or untimely filing of tax returns that point to back-end irregularities.

And this is of particular risk to restaurants that have point of sale systems but do not maintain ongoing sales reports.

What Does the CDTFA Audit Process Look Like?

An audit adheres to the same sequence in most cases:

·         Notification: The CDTFA provides a written notice informing about the period and scope of the audit.

·         First Interview: The auditor will be able to review business operations, sales systems, and accounting.

·         Document Review: It is the process where the auditor reviews purchase records, bank statements, purchase invoices, POS summary, and sales records.

·         Sample Testing: There are instances where the CDTFA applies the testing period to estimate taxes for the entire audit term.

·         Finding & Evaluation: When discrepancies are identified, a Notice of Determination is republished specifying the number of additional taxes to pay, penalties, and interest payable.

What Are the Most Common Mistakes Restaurants Make During Audits?

A lot of restaurant owners unwillingly make their audits difficult by:

·         Absence of systematic documentation (daily sales receipts, cash receipts, or copies of tax returns).

·         The wrong categorization of items that are not chargeable at the rate of taxes, e.g., take-out or cold foods.

·         The next failure to monitor the meals of employees or the gifts, which can remain taxable.

·         Using POS data only without matching it with bank deposits and accounting.

These omissions may cause overestimated tax payments, which would not have been aligned with actual business performance. Experienced IRS tax experts, including ( former IRS tax lawyer from San Diego, a former auditor, and sales tax attorneys, can help restaurants deal with the CDTFA challenges.