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statistics to reconstruct expenses. In this endeavor, respondent
relied on a financial survey prepared by the National Bicycle
Dealers Association entitled “The Cost of Doing Business for
Independent Bicycle Retailers”. The survey found that for the
average independent bicycle retailer with total revenue of
between $250,000 and $500,000 in 1993 and 1994: (1) The owner of
the business took a total salary or draws of 7.1 percent of total
revenues, and (2) the shop had a net financial income of 3.8
percent of total revenues. The parties then stipulated that in
1986 the average independent bicycle retailer with total revenue
in the $250,000 to $500,000 range also had owner salary or draws
of 7.1 percent and net financial income of 3.8 percent of total
revenues.
Based on these percentages, respondent computed Bicycle
Sport’s net profit for tax purposes to be $33,916. This number
comprises owner draws of $22,092 (.071 x $311,159), a
nondeductible outlay in this context, and net financial income of
$11,824 (.038 x $311,159). Stated differently, the survey showed
that the average bicycle retailer earned net income for tax
purposes of 10.9 percent of sales (7.1 percent + 3.8 percent) and
incurred deductible or offsetting expenditures of 89.1 percent
(100 percent - 10.9 percent) of sales. Accordingly, here Bicycle
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