How a One-Day Site Test Becomes a $500,000 Assessment
May 05, 2026OUTCOME: On Appeal, the CDTFA was directed to recompute taxable sales, resulting in a lesser tax liability and substantial savings for client.
A California restaurant owner gets a letter from the California Department of Tax and Fee Administration. Sales tax audit. Three years. By the time the auditor finishes, the proposed assessment is over ... half a million dollars — including a negligence penalty stacked on top. The numbers feel impossible. The restaurant's actual gross receipts over those three years were never anywhere close to what the auditor is now claiming. But on paper, the calculations look authoritative: percentages, ratios, multi-year extrapolations, official forms. From these single-day figures, the auditor calculated a credit card ratio of 50.88% of total sales for that day. Working backward from the merchant statements at each of those lower ratios, the auditor calculated "audited taxable sales" of roughly $12.5 million for the three-year period — almost double what the taxpayer reported. The "understatement" came out to $5,682,731. The corresponding tax: $507,409. Add a 10% negligence penalty of $50,740. Plus interest.
