Sol Bookkeeping Services, Inc.

16-13

On October 23, 2015, the Department assessed the Taxpayer for gross receipts tax, penalty and interest as a successor in business.  On December 7, 2015, the Taxpayer filed a protest to the assessment.  The Taxpayer began doing business in 2009.  The Taxpayer was started and owned by three people.  The Taxpayer provides accounting  and bookkeeping services to its clients, who are primarily small business owners.  The Taxpayer sends its employees to the clients’ locations, provides general office bookkeeping, and trains its clients to do bookkeeping themselves.  The Taxpayer also assists its clients in payroll and filing of gross receipts taxes.  The Taxpayer does not maintain a physical office, and does not have inventory, supplies or equipment.  The Taxpayer uses computer software for its billing, which is located on the personal computer of one of its owners.  In 2002, seven years prior to the Taxpayer’s inception, that owner started and wholly owned another business, also engaged in accounting services, that used the same computer program as the other business.  That firm’s business consisted mainly of corporate entities, and mainly reviewed and prepared corporate income tax returns for its clients.  In 2004, the owner was injured in a car accident and suffered complications for several years that prevented her from managing the firm.  She turned the day-to-day operations over to the manager, who failed to keep the firm’s gross receipts taxes current.  In 2010, the owner was healthy enough to take on a more active role in the firm and discovered the tax issue.  In doing further investigation over the next two years, and working with the Department and the IRS, the owner discovered that the firm’s books were a mess and the manager had been involved in embezzlement.  A Department employee and an IRS employee advised the owner to shut down the firm because of these issues.  The owner shut down the firm in September 2012, approximately three years after the Taxpayer was established.  The shutdown of the firm did not interrupt the operations of the Taxpayer.  The owner maintained that the Taxpayer and the firm were completely separate entities, but after the firm ceased operations, the Taxpayer filed a corporate income tax return for one of the firm’s former clients, and the firm’s goodwill transferred to the Taxpayer when some of the firm’s clients switched over to do business with the Taxpayer.  The hearing officer determined that the Taxpayer was a successor in business to the firm, and therefore responsible for the assessed tax, but successor’s in business are not responsible for penalty or interest, so that was ordered to be abated. The Taxpayer’s protest was granted in part and denied in part.