Restaurant Mark-up Audits
The BOE has been focusing heavily on Restaurant audits as they have shown to be a significant source of additional revenue in a sales tax audit.
One of the common procedures used by auditors in these audits is the mark-up audit. This method is used when auditors suspect reported sales are understated. Initially, an analysis is made comparing the cost of sales with the reported sales. If the food and bar mark-up percentages are too low (which they believe to be less than 250-300% for food and 320-350% for bar) they proceed to what is called a “shelf test.” The name comes from the idea that the selling price on “the shelf” (think of a market) is compared to the cost to establish a mark-up.
In the shelf test process, auditors pick a selection of food and drinks sold and compare the cost price with the sale price on the menu. This shelf test is normally performed using current costs and current sale prices. A