A group of 37 Oklahoma mom-and-pop convenience store owners who claim they were targeted for unfair state sales tax audits because of their race or religion must exhaust their appeals through the Tax Commission's administrative process before they can argue their case in Oklahoma County District Court, a judge ruled Friday.
Millions of dollars in sales tax revenues are at stake.
The Oklahoma City area store owners believe they were targeted for audits because they are Muslims or Vietnamese, said Natalie Mai, one of their attorneys.
The store owners told Oklahoma County District Judge Barbara Swinton in court filings that they object to the method Tax Commission employees have been using to audit them.
The controversial method involves getting sales information from the beer distributors who supply the stores and then using that information to project sales of additional merchandise using average sales data compiled by the National Association of Convenience Stores.
The auditing method is targeted at minorities and “intentionally designed to create sales tax assessments far in excess of actual tax liability,” the store owners alleged.
Beer purchase data
Tax Commission officials deny that minorities were targeted.
They say the bulk of the audits were triggered by a computer program designed to identify likely tax cheats.
The computer picked them out for audit because their reported sales of beer and other merchandise subject to sales tax appeared extraordinarily low when compared to the beer they purchased from distributors for sale at their stores, a Tax Commission attorney said.
Other stores were targeted because they were implicated in investigations involving the sale of unstamped cigarettes, food stamp program abuses or failure to withhold income tax on salaries paid to employees, court records indicate.
A Tax Commission audit supervisor has stated the method has been used when stores had “no records, insufficient records or clearly erroneous records.”
However, an attorney representing the convenience store owners told Swinton on Friday that the Tax Commission auditors have been using the beer purchase data to project tax liability for the minority convenience store owners even in cases in which the owners had made other records available.
Attorneys for the convenience store owners wanted Swinton to ban the Tax Commission from using that method to calculate tax liability.
Swinton refused Friday, saying the various tax cases must be allowed to proceed through the Tax Commission's administrative process.
Tax Commission hearings on those cases are closed to the public.
The commission publishes its final rulings on its website, but the names of taxpayers and their stores are redacted, so only limited information is available to the public.
A review of several recent Tax Commission rulings indicates commissioners may be less willing now than in the past to rely solely on tax audits based on beer purchase data — at least when other types of records or partial records are available.
While the commission denied several tax protests in 2010 and 2011 where that auditing method had been used, this year they have sent several decisions back to administrative law judges with instructions that they consider adjusting tax bills based on records provided by the taxpayers and other factors.
Mai expressed disappointment that her convenience store owner clients will have to fight each case individually before the Tax Commission rather than having a judge decide the legitimacy of the beer data audit methodology.
“My clients have been branded as tax cheats when they really are not,” she said.