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petitioner filled out a receipt, gave one copy to the customer,
and placed the other copy in a drawer. When the video was
returned, petitioner matched it to the receipt and wrote the
letter “R” on the receipt to indicate that the video had been
returned. These receipts were examined each month by Washington
State officials to determine petitioner’s Washington State excise
tax liability, which apparently was based in some part on gross
receipts.
During the years in issue, Grand Video’s video rental prices
ranged from $1 to $3.50 per day. Many customers paid by check,
but most transactions were in cash; credit cards were not
accepted. The cash register in Grand Video’s store was used to
hold cash and make change, but not to record income from rental
and sales transactions.
Petitioner maintained several bank accounts during the years
in issue. One checking account was dedicated to Grand Video (the
business account). Many business expenses, including rent,
utilities, and store maintenance were paid by checks drawn on the
business account. Other business expenses were paid by cash and
recorded in a cash journal, but income received in cash was not.
Entries in the cash journal, including the cost of the journal
itself (i.e., $5.25), range from $.89 for a drill bit to $879.39
for “new carpet”.
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Last modified: May 25, 2011