Justice John Lahtinen
Restaurateur Hwang produced inadequate records for a sales tax audit for March 2004 to November 2006. Using information from a 2007 one-day indirect audit, the Audit Division assessed $27,041 in unpaid tax, $9,378 interest, and a $7,211 penalty. Third Department confirmed the Tax Appeals Tribunal’s decision upholding the assessment. Unlike Matter of King Crab Rest. v. Chu, the record reflected the Audit Division’s efforts to conduct the audit based on Hwang’s records. Substantial evidence supported the tribunal’s finding that it was impossible for the division to verify Hwang’s taxable sales from his records. Among other things, Hwang’s accountant acknowledged that guest checks could not be tied to cash register tapes. Citing Matter of Lombard v. Comm’r of Taxation & Fin., Third Department observed that where a taxpayer does not maintain sufficient records, the division may resort to an indirect audit. The taxpayer challenging such an audit must show, by clear and convincing evidence, that the audit method or tax assessment was wrong. Although a longer audit period might have produced a more accurate representation of his business activity, Hwang failed to meet his burden of proof.
