Why don’t you just ask him what is going on?
Seems like a logical solution.
That may be in an audit, a way to determine if they were cheating, but there is no way that that would flag them. The IRS doesn’t have some giant database where they have all the vendor’s sales invoices along with every restaurant’s sales.
There is no responsibility to report to the IRS how many pizzas you sold, nor how much flour you bought.
Now, as I said, if you have already gotten flagged for something else, and they start taking a look at your books more closely, then that discrepancy would be an issue.
That is a very, very, very common server scam. Though I am no longer in the industry, I did spend nearly 20 years getting skipped for raises due to being held accountable to food cost, while servers were stealing left and right. I do appreciate you informing the management about this server’s actions.
Another thing to keep an eye on is if they don’t ring in your drinks or salad or extras. In this case, they are delivering stolen property to your table in the hopes that you will notice the lower than expected bill, and reward them for it with a bigger tip.
An alleged quote from a state tax auditor:
“$17,000 in sales!?! You spent $17,000 on pepperoni last year!”
I put 758 slices of pepperoni on each pizza!
Edited to ask: So did you ever call the state tax office or whatever?
Even if that was actually said and done the result was the same as likely in the OP’s case, they were fined some amount of money based on an estimate of actual sales, negotiated down in court, after hiding cash for years that amounted to millions and was never taxed. Karma got those guys in the end, they were Greek and invested most of their money in Greece, and lost it in the economic collapse there a few years ago.
But I will say these were really nice guys, otherwise pillars of the community. It was common practice here in RI, likely with a blind eye from government, corruption is legendary in this state*. There’s just no way for state or federal authorities to keep track of the cash flow through small retails businesses and nearly all of them are under-reporting sales. All too often that’s how small businesses stay afloat. Suddenly having to report all sales accurately would lead to an economic collapse or gross inflation, and certainly an unemployment spike.
*If you think your state is corrupt, how many of your governors went to jail after being caught rummaging around in a fast food place dumpster looking for the bag of cash they accidentally threw away. Yes, corrupt, and stupid too.
Was that the sitting governor at the time?
He was out of office when he was convicted for crimes he committed while in office. The bag of cash was after he left office but intended to bribe a state official. Corrupt state courts initially dismissed the charges against him but he eventually plead guilty to keep his son out of prison just like another one of our native sons who just plead guilty to federal perjury charges. A minimum security prison in Connecticut is a retirement home for former RI officials.
That’s cool, thanks for the info. I was just hoping the sitting governor was going into fast food dumpsters 
That’s the broad angle.
The practical angle is: it takes a lot of time to Close legal loopholes; and not all legal loopholes are the result of Special interest Groups, they often are honest attempts to try and help some (niche) industries. Every good tax law and its loopholes tries to balance different requirements from different parts of the Population.
Should sales tax be low, so that Food is cheap for poor People? Or should it be high, so the community has enough tax Money for infrastructure? Compromise: Basic Food (bread, milk) has reduced sales tax, but luxury Food (caviar, Restaurant Food) has high sales tax.
But somebody who is cheating = stealing = breaking the law, either on the owner, the Franchise chain, and the tax Office, can be reported, audited, and stopped in a much shorter time than to pass a new bill.
There’s a conundrum here. The lack of enforcement incentivizes the cheating. Selective enforcement can cost more than the taxes lost, that disincentivizes further enforcement. We don’t want to pay the cost of comprehensive enforcement incentivizing more cheating. Sales taxes are spread widely in small businesses making it economically impractical to enforce but seen as a fair kind of taxes since they affect the people with the most money to spend, but shifting to different forms of taxation won’t stop business from taking cash before taxation in some other form.
Because one has (presumably) been vetted and approved by an elected legislature, and one has been expressly disapproved. It’s much like the difference between handing a potential legislator a bag of cash, and making a “campaign donation” to a campaign office that is a registered LLC (aka “pass-through corporation”). (State laws vary, but many still allow this.)
One can get you a tax deduction, the other a jail sentence for being a party to the crime.
Which is why the warehouse/inventory control system is always my first stop on a factory tour. Then I go through the production lines* and end up with the surprise request to visit the accounts payable office.
A lack of tie-in between the inventory control and accounts payable systems results in a deep heart-to-heart between me and the business owner about the advisability of getting into the Federal Contracting business. GAO audits are a bear, and quality control processes on the car-delivered components can’t be verified.
- I also bring a hard hat and steel-toed boots, so they don’t get away with avoiding certain areas.
If I see evidence of this sort of thing I immediately get nervous about the food quality. Franchisees get away with this by buying ingredients from outside vendors who take cash. Cash food vendors tend also to avoid FDA rules and inspections.
No thanks! 
OR he may pay his tax/franchise fees honestly, based upon a drawer count at the end of each shift. It’s entirely possible that he just can do all of this in his head faster and easier than using the buttons.
Precisely. Once you are under audit, you’re in the hands of someone who knows what to look for. But audits are far less common than most people think.
Is a drawer Count legal? Not just for sales tax purposes, but doesn’t every Business have to make an income tax declaration at the end of the year, where you write down for each day how much Money you took in, how much Money you spent on raw materials, and deduct the latter from the former to get net Profit, to which income tax is applied?
Would a written-down account at the end of the day based on a drawer be valid as proper book-keeping for a real Business?*
- Here we have a rule that small businesses - not small = the owner is 1.50 m tall, but small as in “gross income is less than x 000 Euros per year” don’t have to follow the full book-keeping and rules of sale law, but a simplified Version, to make things easier for the granny who knits scarves and sells them once a year at the church basar or similar.
There is no day to day reporting to be done to either the IRS or to the State sales tax administration. There is just the annual revenue, minus business expenses to the IRS, and to the state tax, it is entered into their website.
They never actually look at the actual POS or other sales tracking that the business uses.
Except, in the case of an audit, of course, but for general purposes, they do not need nor have access to that information.
Oh. That sounds really … unsafe, as in: encouraging cheating.
If businesses beyond a certain size are not by sales law /income tax law required to do proper bookkepping, how can not only the IRS, but also Investors, Banks etc. assess whether they tell the truth?
Are only stock companies required to do a proper Balance once a year?
I don’t think it’s morality here, but allegiance to the state and it’s laws and ‘being a good citizen’.
I can’t say what all the laws are, but larger companies will keep detailed records to prevent their employees from skimming cash and to avoid having the IRS breathing down their neck. It certainly doesn’t dissuade cheating.
Are you in a country with VAT? That probably requires a lot closer auditing.
Sales tax is a state level function here in the US, every state will have different laws, but I’m not aware of any requiring daily reporting for small business sales.
Yes, we have VAT - but as I said, detailed bookkeeping for any Business that’s not small is required by Sales Law (Handelsgesetzbuch Handelsgesetzbuch - Wikipedia) as well as General income tax law. The VAT is derived just as a side Point: when doing proper book-keeping, all VAT you pay when buying materials is booked on one Special account (so buying flour, you book 100 Euro for flour on materials and 7 Euros on the “deductible VAT account”) and when selling the Pizza/ bread/ whatever, you book 5 Euros on the "Revenue account, and 15% of that onto “VAT to be transferred to IRS”.
Then you just subtract the deductible VAT from the transferrable VAT = that’s what you owe the tax Office.
There is quite a bit of cheating that goes on.
Personally, I find having good credit to be more useful than cheating to save on taxes, so every dollar that comes in gets reported, so my bank can see how much money I make and continue to give me lines of credit at low interest rates.
When I want more money from the bank, sometimes I have to give them some more information on sales and such, and I’m not a publicly held company, so investors don’t matter.
But yeah, I pretty much just send them my revenue for the year, along with my business expenses* for the year, and I pay the tax on the difference. Sales tax is totaled up and deducted from my account. (Though it isn’t much, as I am in an untaxed service industry, and the only sales tax I pay is on the small amount of retail I sell.)
If they want to look further into it, they can come in and look at all my receipts for an audit. Never had one in 5 years, but I still keep every receipt for every business transaction.
That is actually a pretty complicated thing, that my CPA is more versed in than I , that involves depreciated, amortization, there are limits to how much of certain things can be deducted, and so on.
Ok, now I recall, it’s paid on the materials and on the sales. I remember that it was listed on receipts, I assumed for something the customer could use as some kind of deduction later (that was early 90s). We only pay sales tax at the consumer level here, there’s nothing paid on the supplies. That’s another type of cheating, where purchases are made for materials not intended for sale but no sales tax is paid. The purchaser of the materials gives the supplier a tax ID number and no sales tax is collected. A restaurant owner could be buying his personal groceries from his supplier and never paying tax on it. Its very difficult for the government to detect that. To avoid problems the suppliers often will not sell retail at all, require a business license from their customers so they don’t collect sales tax on anything. Anybody with a small business can be taking their personal use items out of business stock and never get caught. If you thought your neighbor was taking home tax free toilet paper from his business and you called the authorities they’d just laugh at you.
There’s a whole other world of under and over reporting income by businesses. A business owner may inflate his sales in order to sell a business. A common scam is to pay himself, report that, then take that money and spend it at his own business, only putting it on the books but not actually consuming any product. So it looks like he’s doing well enough to take money out of the business and his sales are higher without increasing costs. Anyone buying a small business has to be aware of these scams.