top of page



New Jersey Sale Tax Audits of Cash Business

Yilmaz v. Director, Division of Taxation, 22 N.J.Tax 204, N.J.Tax, Apr 01, 2005 (NO. 000240-2003).

The principal issue in Yilmaz is the validity of the “markup” analysis performed by the Director’s auditor in reconstructing plaintiff’s income and receipts.


The Tax Court concluded:

that, in a case involving a challenge to a determination by the Director based on an audit of a cash business, involving only factual issues and the methods employed by the Director, the standard set forth in Pantasote Co., supra, 100 N.J. at 413, is a reasonable and practical one. That is, the presumption that the Director’s assessment is correct can be rebutted only by cogent evidence that must be “definite, positive and certain in quality and quantity to overcome the presumption.” Ibid. That evidence must focus on the reasonableness of the underlying data used by the Director and the reasonableness of the methodology used. Ocean Pines Ltd., supra, 112 N.J. at 11. An “aberrant” methodology will overcome the presumption of correctness. Id. at 12. An imperfect methodology will not.

Read Full Yilmaz tax court case.


Yilmaz v. Director, Division of Taxation, 390 N.J.Super. 435, 915 A.2d 1069 (N.J.Super.A.D., 2007).

On Appeal, the Appellate Division affirm substantially for the reasons articulated in the Tax Court decision.  However, the Appellate Court added:

There is nothing to prevent a taxpayer from producing competent independent evidence, expert or otherwise, to challenge that presented by the Director and demonstrate that the Director's methodology was aberrant or the amount of the assessment was far wide of the mark. Moreover, a taxpayer can produce evidence through cross-examination of the auditor that is sufficient to overcome the presumed correctness of the Director's assessment and to establish that the sales tax assessment should be reduced.  Charley O's, Inc., t/a Scotty's Steakhouse v. Director, Division of Taxation, 23 N.J. Tax 171, 172 (Tax 2006).

Read Full Yilmaz appellate case.


Charley O's, Inc., t/a Scotty's Steakhouse v. Director, Division of Taxation, 23 N.J. Tax 171 (Tax 2006).

The Tax Court found the Director's methodology to be "aberrant and not merely imperfect."

The Tax Court recognizing the Director had the authority to use the markup method found he did not have the authority to adopt the gross receipts reported on the taxpayer's CBT returns over the gross receipts reported on the sales tax returns "merely because it was more convenient to do so or because the use of the gross receipts reported on the CBT return produced a larger sales tax liability." Additionally, and most critical to the court's determination, was that the auditor was directed to stop his markup analysis before it was complete and to arbitrarily increase the taxpayer's purchases which, when multiplied by the markup ratio, would equal the gross receipts reported on the CBT returns.

Read Full Charley O's, Inc. case.


Thomas F. DiLullo, P.C.

A Hackensack law firm serving Bergen County, as well as, New Jersey, New York and Connecticut, and Federal tax cases nationwide.

bottom of page