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MA Meals Tax Audits are Happening. Attention Restaurant Owners

by | Feb 21, 2023 | Assurance - Audits, Reviews, & Compilations, Blog

We are starting to see the first meals tax audits happening now, since Massachusetts began requiring restaurant owners to disclose which Point of Sale (POS) system they utilize. This article includes more information about Massachusetts meals tax reporting requirements and the risks of an audit. Rest assured, if you are notified of an audit of your restaurant or bar, our accountants are experienced and available to lead you through the process.

The Change in 2022:

In 2022, the Commonwealth of Massachusetts enacted a new law affecting meals tax reporting. While meals and sales tax reporting is not new, this law now requests the point of sale system (POS) to be disclosed as part of the reporting. This enables the Commonwealth to monitor and identify unusual trends that may trigger an audit.

With all the meals tax reporting the state compiles and analyzes, data of interest includes monitoring cash sales and credit sales as a percentage of total sales. State data by city and town enable systems to identify anomalies outside of expected percentages by community. For example, restaurants in communities such as Andover, MA tend to have high credit card sales and a low percentage of cash sales. The opposite tends to be true in Lawrence.

The 2022 reporting requirement requires selecting which POS your business uses or indicating you do not have a POS. Businesses reporting not having a POS in place is going to factor into whether your business is audited. Restaurants not having a POS system are likely more at risk for an audit by the Commonwealth.

A MA Meals Tax Audit and What You Need to Know:

State meals tax audits may be random or triggered based on information reported on Form 1099K. If you are notified by the state of a meals tax audit, there is information you will need to be prepared to provide to the state auditor.

The state auditor will typically request backup to your POS system for a minimum of two years. They will likely request bank statements for a minimum of two years, too. If you do not have a POS, they are going to request documentation to support sales and tracking of credit card and cash payments.

An audit may last for several months or for a restaurant owner who did not have a POS system, the audit can last over two years. If the state auditor does not identify any concerns during the review of the information provided, the audit is concluded without penalties. If there are identified concerns, the auditor may request additional detail including POS system backup and bank statements going back further. The focus of the audit is to determine if additional meals taxes are owed to the state. If it is determined that additional taxes are due, there will be a calculation of the amount owed by year plus interest and penalties.

How LCW CPAs Helps Our Clients Through the Audit Process

The team at LCW CPAs is experienced and knowledgeable in the restaurant industry and helping our clients in related businesses with accounting, meals and tax use reporting, and guiding them through audits. Rest assured if you are notified your restaurant, café, or related business is being audited, as our client, we will be with you every step of the way, from start to finish.

Milton Vargas is a Shareholder at LCW CPAs and is an example of a team member who has vast expertise working with restaurant owners in Lawrence, Andover, and throughout the region. Vargas recently had a client who received notice of randomly being selected for a state meals tax audit. The restaurant owner was understandably concerned and stressed about the process of going through an audit, given the demands of running a successful local restaurant.

In this case, the restaurant was randomly selected so there was no reason to believe there was any cause for concern. Given how busy the restaurant owner was at the time of the audit, the owner asked for Milton’s expertise and guidance, granting him Power of Attorney. In this role, Milton advised, guided, and communicated on the client’s behalf. All requested materials including two years of POS backup records and bank records were provided from the client. Should there be any need for negotiations, Vargas would be the intermediary and the negotiator on behalf of LCW CPAs’ client.

If you are notified of a state meals tax audit, we will be by your side from start to finish. Like Vargas, our role can include being granted Power of Attorney, but either way, you can count on us to advise, guide, and support you. As our client, we are working on your behalf. We know the state meals tax reporting requirements, we know you and your business, and we can be the point person for the state auditor to communicate and facilitate the process. Should negotiations be necessary as part of determining any tax liability, we have the experience and knowledge to negotiate on your behalf.

Whether the audit lasts two months or two years, we will be right by your side. If your business is affected by the Commonwealth of Massachusetts’ new requirements for reporting meals taxes and you have questions, please contact us. Now is the time to time to get your reporting in order to avoid business disruptions and potential penalties. Our accountants have the experience and knowledge to guide and assist you throughout a state audit.