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​Restaurant Audits During the 2022 Restaurant Industry Initiative

What to Expect if Selected

The Department of Revenue is implementing a new approach to help businesses in the restaurant industry as they continue to work through the hardships caused by the COVID-19 pandemic. This two-fold approach is designed to first provide additional resources and guidance for the industry and secondly, to better utilize department resources and ease the burden on compliant businesses. 

The Right to Audit

Title 72 P.S. §7272 states that the department or any of its authorized agents are authorized to examine the books, papers, and records of any taxpayer in order to verify the accuracy and completeness of any return made or, if no return was made, to ascertain and assess the tax imposed by Pennsylvania state law. This also includes the right to examine taxpayer records to verify compliance with laws pertaining to employer withholding of Pennsylvania personal income tax.

Standard Audit Requirements and ProceduresLimited-Scope Audit Requirements and Procedures

During a standard audit, taxpayers are required to provide the department with all necessary tax records upon request for the current calendar year and the three previous calendar years (standard audit period). In addition, taxpayers are to provide the opportunity and physical facilities to enable the department to examine the records.

The department is required to use audit procedures that are in conformity with state law and department regulations and policies. These procedures involve examination of source documents, journals, ledgers, schedules, tax returns, and other records used by the taxpayer to record sales and purchase transactions as well as the withholding of Pennsylvania personal income tax. The auditor may conduct a complete review or utilize test methods that allow for the examination of a representative portion of the taxpayer's business activities for the standard audit period.  The audit findings must be documented in a report that includes a narrative, forms, schedules, and exhibits.

During this initiative, a restaurant that meets the requirements outlined below will be subject to a limited-scope audit involving a one-month examination. A restaurant failing to meet these requirements will be subject to an examination of the standard audit period.

Eligibility Requirements for Limited Scope Audit

To be eligible for a limited-scope audit, a restaurant must meet the following requirements:

  • All returns including sales tax and employer withholding returns have been filed
  • Outstanding tax liabilities have been addressed with the department
  • Records necessary to conduct the audit were maintained and provided to the department's auditors for examination. The records expected to be provided include:
      • Transactional Sales Receipts
      • Credit Card Slips
      • Voided or Cancelled Sale Documentation
      • Exemption Certificates
      • Bank Statements
      • Daily Sales Reports
      • Monthly Sales Reports
      • Monthly Merchant Credit Card Statements
      • Federal Form (FF) 1099-K
      • Monthly Statements from 3rd Party Delivery Companies such as Grubhub, DoorDash, etc.
  • The examination of the restaurant's records must not reveal any material underreporting of sales, sales tax collected, employee wages, or employee withholding.
 
 

 Accordion



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​Overview of Initial Procedures

Failure to Meet Limited-Scope Audit Requirements

​Conclusion of the Audit