Michigan: Auditor's Use of Judgment Block Samplings Stands
- Sep 11, 2013 | Gail Cole
The Department of Treasury is authorized to use judgment block sampling procedures during sales and use tax audits. Judgment block samplings use "a non-random selection from a population from which a conclusion is drawn…. A block sample may be used where the auditor determines it to be the most efficient and cost effective."
Of course, business owners under audit have a right to contest the use of this method, and from time to time, they do.
In June of this year, the Michigan Tax Tribunal published a final opinion and judgment on the matter of BF Enterprises, Inc., v Michigan Department of Treasury. The petitioner, who owns a gas station and convenience store in Michigan, appealed a sales tax assessment that was based on a judgment block sampling. One can hardly blame the petitioner for trying, as the three-year audit period resulted in an assessment of more than $965,000. The petitioner maintains that "[t]he amount assessed by the auditor is outrageous and would put the Petitioner out of business."
According to the auditor, Mr. Justin Storey,
"The… projection that we applied, which … was only done because of the lack of actual information,…. [was the] best way that we could use the taxpayer's actual information for the two months to project merchandise sales for the audit period. We didn't have any other information available to us."
In other words, had the Petitioner provided accurate records of all sales for the entire audit period, a judgment block sampling may not have been necessary. The audit findings may still have been high, but they would have been based on actual sales, not a projection of sales.
Sadly for the Petitioner, the Tax Tribunal upheld the Department of Treasury's use of the block sampling method, and the nearly $1 million assessment.
Interested in the fine print? Read the final opinion and judgment here.
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