Darrell L. Gaines - Page 8

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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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