More, Inc. v. Commissioner of Revenue

Decision Date19 February 2016
Docket Number8395-R
PartiesMore, Inc., d/b/a Blarney Pub & Grill, Appellant, v. Commissioner of Revenue, Appellee.
CourtTax Court of Minnesota

This matter came on for hearing before The Honorable Joanne H Turner, Chief Judge of the Minnesota Tax Court, on the prima facie validity of the Commissioner's assessment of sales and use tax against appellant More, Inc.

Mark A. Pridgeon, Attorney at Law, Edina, Minnesota, appeared on behalf of appellant More, Inc.

John R. Mule and Shannon M. Harmon, Assistant Minnesota Attorneys General, appeared on behalf of appellee Commissioner of Revenue.



The court, having heard the testimony of witnesses and the arguments of counsel, having reviewed the exhibits and written submissions, and based upon all the files, records and proceedings herein, now makes the following:



1. Appellant More, Inc., owns and operates Blarney's Pub & Grill, a full-service Irish-pub-style restaurant and bar near the University of Minnesota. Tr. 12-13. Blarney's opened for business in August 2004 on the main floor and loft space of the building. Tr. 11-12. In 2010 Blarney's began operating in the basement of the building as well. Tr. 13.

2. Blarney's clientele is primarily University of Minnesota students between the ages of 21 and 25, although the establishment serves an older demographic around dinner time during sporting events and concerts. Tr. 13.

3. During the audit period, Blarney's was open seven days a week, from 9:00 a.m. to 2:00 a.m. Mondays through Fridays and from 8:00 a.m. to 2:00 a.m. on Saturdays and Sundays. Tr 15; Ex. J46. The bar held "happy hour" from 3:30 p.m. to 7:00 p.m., but did no more than about 10% of its business during those times. Ex. J46; Ex. J42. The bar's busiest times are between midnight and 2:00 a.m., Tr. 15; Ex. J46, and Thursday nights, Tr. 50.

4. Blarney's uses three pour sizes for tap beer: 15 ounces (pint), 24 ounces (mug), and 58 ounces (pitcher). Ex. J46. Blarney's uses recommended pour sizes of 1.25 ounces for liquor and 6 ounces for wine. Ex. J46; Tr. 60.

5. Blarney's generally sets its prices for the upcoming academic year each August, offering different specials and discounts every night. Tr. 49-50. On Thursday nights during the audit period, for example, Blarney's offered Long Island iced teas for $2.50 (a discount from the regular price of $6.00 or $6.50) and Coors Light 15-ounce tap pints for $2.00 (a discount from the regular price of $4.25). Tr. 50.

6. The majority of Blarney's beer sales were discounted. Tr. 50-51. For example, on Thursday nights, when Blarney's discounted Coors Light on tap, it sold seven or eight kegs' worth, as compared to less than one keg during the rest of the week. Tr. 53-54.

7. Blarney's discounts both "regular" (domestic) and "premium" beers. Ex. J46; Tr. 53-55.

8. Blarney's does not use a tiered pricing system for liquor; each drink is individually priced, ranging from $4.25 for rail and call drinks to as much as $16.50 for premium drinks depending on the brand. Tr. 55. A majority of Blarney's liquor sales are made at discounts of half or more. Tr. 55-56.

9. Blarney's sells wine in only 6-ounce pours, at prices between $4.50 and $5.00. Wine is never discounted. Tr. 56.

Point-of-sale system

10. During its entire existence, Blarney's has used a point-of-sale system called Xyng to record sales of both food and drink. Tr. 15-16. During the audit period, there were two Xyng terminals at the front bar, two terminals at the back bar, a server station near the front bar, and another station in the kitchen. Tr. 16. When Blarney's expanded to the building's basement in 2010, it installed four additional terminals there. Tr. 16. The Xyng terminals and workstations tie to a computer in the office on the second floor of the building. Tr. 16.

11. The point-of-sale system records the quantity of each particular item of food and drink sold, the time of each sale, and total revenues from the sale of that particular item, but apparently does not record the price specific to each sale. Tr. 80-81. For example, the point-of-sale system might indicate that nine pints of Coors Light were sold at a total of $20.25, but apparently does not record the price of each pint.

12. The point-of-sale system must be programmed with prices for individual food items and drinks. Tr. 289. During at least part of 2010, some drinks were mistakenly programmed as food. For example, Gnarleyhead Pinot Grigio (a wine), Black & Tan (a beer), Malbec (a wine), and Smithwicks (a beer) were all incorrectly programmed as food. Ex. J8, at TO 1044.

13. The point-of-sale system is programmed to automatically shift to discounted prices at particular times of the day. Tr. 87.

14. When a customer places an order for food or drinks or both, a server enters the order into the point-of-sale system. Tr. 17-18. Food orders are sent to a printer in the kitchen to be prepared; drink orders are sent to a printer at the bar to be prepared. Tr. 18.

15. When the customer is ready to leave, the server presents the customer with an itemized ticket. Tr. 18. The customer gives the server a credit or debit card or cash (the establishment does not take personal checks). Tr. 18. If payment is by credit or debit card, the server swipes the customer's card, generates two receipts (one for the customer to sign and one for the customer to keep), and "closes" the table. Tr. 18-19, 285. If payment is by cash, the server makes change for the customer from her personal "bank" of cash and, back at the workstation, "closes" the table in the point-of-sale system. Tr. 19.

16. Because drink and food orders are prepared in response to tickets generated by the point-of-sale system, a server cannot serve food or drinks without entering the order into the point-of-sale system, or without colluding with a bartender and/or a kitchen staffer. Tr. 157-58.

17. A server cannot generate a credit card slip without entering the customer's order into the point-of-sale system. Tr. 157.

18. A bartender can pour a drink for a customer and take payment for it in cash without entering it into the point-of-sale system, but cannot generate a credit or debit card slip for the customer to sign without entering it into the point-of-sale system. Tr. 158-9.

19. At the end of the server's shift, the point-of-sale system generates a sales summary for that server. Tr. 19. The server presents the summary to the bartender, along with the signed credit card receipts and cash to equal her total sales for the shift. Tr. 19-20. The cash is placed in the drawer of a particular workstation, called the "bank." Tr. 20. Each server is responsible for making up any shortage in cash receipts for his or her shift. Tr. 21.

20. A similar procedure is used to close the "bank." The point-of-sale system generates a summary of sales, both credit card and cash, which should equal the credit card receipts and cash in the "bank." Tr. 20-21. The "bank" is closed at least once a day and, on busy days, may have been closed more often to reduce the amount of cash in the drawer. Tr. 20. The bartender is responsible for making up any shortage in cash receipts in the "bank." Tr. 21.

21. Credit card sales are credited directly to the taxpayer's bank accounts by the respective credit card companies. Tr. 24. During the audit period, the taxpayer maintained bank accounts at U.S. Bank. One account was used only for deposits of sales made using American Express and Discover credit cards and for paying some commercial loans. Tr. 24-25; Exs. J20, J21. Another account was used for deposits by Heartland (the credit card processing company used by Visa and MasterCard) for deposits of cash sales (labeled "Customer Deposits" on U.S. Bank's statements) and for payment of the expenses of the business. Exs. J24, J25, J26, J27.

22. Cash removed from the "bank" is placed in an envelope and secured in a locked safe until the following day, when Mr. Mulrooney recounts and deposits it. Tr. 21-22. During the audit period, deposits were always made on Thursdays, Fridays, and Mondays, but not always on other days of the week unless the amount of cash to be deposited was particularly large. Tr. 22.

23. To alleviate pressure on the bartenders on busy nights, Blarney's sells bottled beer from a tub near the front door for $3 per bottle. Tr. 35-36, 38. The employee responsible for the tub records the number of bottles of each brand placed in the tub; beer is always added to the tub by the case. Tr. 38. At the end of the night, the server responsible for the tub tallies the number of bottles of each brand of beer remaining in the tub and subtracts that from the number of bottles of each brand placed in the tub. Tr. 38-39. The bartender records the number of bottles of each brand sold from the tub in the point-of-sale system, and the server is responsible for depositing with the bartender enough cash to cover those sales. Tr. 38-39.

24. The only expenses of the establishment paid in cash are incidental purchases, such as a head of lettuce or a bottle of ketchup from a nearby convenience store. Tr. 22. Cash for those purchases comes from the "bank." Tr. 22-23. The purchases are recorded in the point-of-sale system, and receipts for the purchases are placed in the "bank" register drawer. Tr. 22-23.

Other controls

25. In addition to the point-of-sale system, the taxpayer uses QuickBooks to track revenues and expenses. Tr. 32; Exs. J29-J32. The taxpayer's accountants, Pitzl and Pitzl, make entries into QuickBooks using information from the point-of-sale system and from the checking account register. Tr. 32-33.

26. There are security cameras on...

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