Tanning Salons

I recently heard of an interesting audit practice.

One of the things that sales tax auditors want to do is make sure that a business is not making unrecorded sales on which they should have paid sales taxes. In the particular state where I heard this, tanning services are taxable. But to make sure the salon was actually reporting all of their sales, the state reviewed their electric bills for the last few years. Why?

The answer? Since the major use of power in a tanning parlor is the tanning bed, then you can see a pretty close relationship between the use of the bed and the electricity cost for the business. Once you know the ratio (which the state has probably already calculated), then a simple comparison of the power use of the store versus the reported sales of tanning services will give the state a good (but not bulletproof) idea of whether or not all of the sales have been reported.

Occasionally, they have a flash of brilliance. What are ya gonna do?

Sales Tax Guy