Without Required Records, Taxpayer Could Not Overcome Presumption of Taxability

May 23rd, 2014

The Rhode Island Division of Taxation ("Division") recently released a decision that a taxpayer was liable for tax on sales from its liquor store because the taxpayer could not present records showing otherwise.

Rhode Island requires retailers to keep records of sales tax they collect. The records must be open for inspection by the state. These records include register tapes, invoices, and receipts. It is the taxpayer's burden to show that a sale is not subject to tax. If the taxpayer does not show this, the state will assume the sale is taxable.

The taxpayer argued that a portion of its sales were not subject to tax. However, it did not have register tapes, invoices, or receipts to prove this. The taxpayer only had bank records to substantiate its claims. The bank records did not contain enough information for the state to discern whether sales were taxable or not. The taxpayer had not presented enough evidence to show that the sales were not taxable, so the sales were taxable.

In addition, the taxpayer was subject to penalties for failing to keep adequate records. Rhode Island treats the failure to maintain required records as evidence of negligence or of intent to evade tax. Because the taxpayer did not maintain any records of sales tax collected, the Division found that the taxpayer intended to evade tax. The taxpayer was therefore subject to penalties.