Opinion
No. 30850
Decided March 26, 1947.
Taxation — Sales tax — Vendor failed to keep complete and accurate records — Section 5546-12, General Code — Presumption that all Sales subject to tax — Section 5548-2, General Code — Deficiency sales-tax assessment made by Tax Commissioner — Sections 5546-9a and 5546-12a, General Code — Burden of proof on vendor claiming insufficient allowance for tax-exempt sales — Drug store receipts commingled with receipts for services as physician.
APPEAL from the Board of Tax Appeals.
This appeal challenges the decision of the Board of Tax Appeals which affirmed a deficiency sales-tax assessment made by the Tax Commissioner against the appellant, Albert Edelstein.
Albert Edelstein and his brother, Henry Edelstein, operated a drug store as equal partners. Henry Edelstein was a duly licensed physician as well as a registered pharmacist. He received and administered to his patients in an office room back of the prescription counter in the rear of the drug store. All receipts from the sale of drugs and certain merchandise by either brother and from patients by Henry Edelstein were rung up and placed in one cash register, but no separate and complete record was kept of payments received from patients. Albert Edelstein had charge of all bookkeeping and prepared the federal partnership returns, individual income tax returns and semi-annual sales-tax returns.
On May 19, 1945, the Department of Taxation, Division of Sales and Excise Taxes, completed an audit of the business of the drug store for the calender years 1937 through 1944, and on June 16, 1945, a deficiency sales-tax assessment was made by the Tax Commissioner for $1,740.10, including penalty, under Sections 5546-9 a and 5546-12 a, General Code.
Albert Edelstein objected to the amount of the sales-tax deficiency so determined and assessed, specifically complaining of the failure to consider fees for professional services as exempt from the application of the sales tax.
After a hearing Before the Tax Commissioner, he found that Albert Edelstein, at the hearing, admitted the amounts of gross sales as returned to the Department of Taxation were understated; that he submitted amended returns increasing the amounts of such sales; that Albert Edelstein had failed to maintain adequate and complete records of his various transactions, and by reason of such fact had submitted no proof to sustain his exceptions. The Tax Commissioner thereupon ordered the assessment to stand.
On appeal and after a hearing, the Board of Tax Appeals found the appellant had presented no proof sufficient to overcome the presumption of validity which attached to the determination of the Tax Commissioner ( Wheeling Steel Corp. v. Evatt, Tax Commr., 143 Ohio St. 71, 54 N.E.2d 132), and that there was no basis upon which the board would be justified in modifying his finding. The Board of Tax Appeals affirmed the order of the Tax Commissioner and appellant perfected his appeal to this court.
Mr. Allyn D. Kendis and Mr. Edward A. Stendel, for appellant.
Mr. Hugh S. Jenkins, attorney general, Mr. Joseph S. Gill and Mr. A.A. Cartwright, for appellee.
Counsel for appellant in their brief state that this appeal is from the "failure of the Tax Commissioner to allow anything to Dr. Edelstein for the services that he rendered and registered on the cash register of the pharmacy."
Henry Edelstein testified that he averaged approximately 10 patients a day for six days a week, that he charged each patient $2 a visit, that he wrote and filled prescriptions for which patients paid, and that his receipts from professional services and prescriptions and the receipts from other sales were rung up on the same cash register.
The original ST-10 returns filed for the year 1942 set forth gross sales in the amount of only $12,518, the amended ST-10 return for the same year listed gross sales in an amount of $23,616.78, and gross receipts of $23,617 were reported in the federal partnership return of income for that year. The original ST-10 returns filed for the year 1943 set forth gross sales in an amount of only $11,565, the amended ST-10 return listed gross sales in an amount of $24,244, and gross receipts of $24,224 were reported in the federal partnership return of income for 1943.
The Board of Tax Appeals in its journal entry demonstrated that, by taking the partnership gross receipts of $23,617 for 1942 and deducting therefrom $20 per day for 5 days a week, or $5,200, for physician's services in 1942 and $17,660 for merchandise bought for sale as reported in the partnership return for that year, there would have been a gross profit of only $757 for that year, or a markup of only approximately 3.2 per cent on goods sold, which was out of line with experience in the drug business, especially where prescription medicines are sold. That journal entry recited a comparable computation for the year 1943, resulting in a markup of approximately 3.8 per cent.
The record in this proceeding discloses that Henry Edelstein admitted he kept no complete record of receipts for his services as a physician for the entire period from 1937 through 1945, although he had a record for the year 1945 or a part thereof. However, he failed to submit even that record to the auditor or offer such incomplete record at the hearing before the Tax Commissioner. Furthermore, Albert Edelstein admitted he had records for 1937 through 1944. He did not exhibit those records to the auditor and they were not submitted to either the Tax Commissioner or the Board of Tax Appeals.
An allowance of 33.2 per cent was made by the Tax for exempt sales.
Section 5546-12, General Code, imposes a duty on each vendor to keep complete and accurate records of taxable sales of property, together with a record of the tax collected thereon and to keep all invoices and bills of lading.
Section 5546-2, General Code, in part, provides: "For the purpose of the proper administration of this act and to prevent the evasion of the tax hereby levied, it shall be presumed that all sales made in this state are subject to the tax hereby levied until the contrary is established."
The appellant failed to sustain the burden of showing that proper allowance was not made for the professional services of Henry Edelstein. Obert v. Evatt, Tax Commr., 144 Ohio St. 492, 59 N.E.2d 931, paragraph three of the syllabus.
The decision of the Board of Tax Appeals is reasonable and lawful and is, therefore, affirmed.
Decision affirmed.
WEYGANDT, C.J., TURNER, MATTHIAS, ZIMMERMAN and SOHNGEN, JJ., concur.
HART and STEWART, JJ., not participating.