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Retail Industry ATG - Chapter 4: Examination Techniques for the Food and Beverages Industries (Retail Liquor Stores)

NOTE: This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.


The basic merchandise carried by liquor stores is wine, liquor, and beer. The stores usually carry some, if not all, of the following: cigarettes, soda, chips, drink mixes, cheeses, and spring water. Many upscale stores have extensive wine departments with a wine expert on hand. Some small liquor stores are more of a grocery store than a traditional package store.


The following are some sources of receipts commonly seen in liquor stores:

  • Other grocery sales – lottery, cigarettes, snacks, food & candy items
    These sales are taxable to the state taxing agency for sales tax purposes.  The examiner can compare the reported gross receipts to those reported to the appropriate state sales tax returns.  In many instances the states examine liquor stores more frequently than the Internal Revenue Service can, so it is prudent to ask for all recent audit reports, and if necessary, contact the state agency for further information.

    Stores with cash registers are required to maintain the daily cash register tapes and present them for examination.  If the examiner questions whether all sales are reported, or if the tapes are missing, an indirect method should be considered.
  • Lottery- scratch-off and machine sales
    Income from lottery sales will be rung on the business cash register and included in total daily receipts.  Income from scratch-off tickets is the sole income of the retailer, so the examiner can verify the amount purchased from the third party and calculate appropriate sales.  Income from machine tickets can be determined from the monthly reports made by the state that administers the program.
  • Check cashing and customers payment on account
    Retail stores do not cash checks as a courtesy; they are in business to earn a profit.  Checks written for more than the amount of purchase may be accepted for regular customers and a fee may or may not be assessed in this situation.  However, when checks such as government welfare benefits or local company payroll checks are cashed, the retailer customarily charges between 3-5% of the check amount, even when a purchase is made.  Some state laws dictate a maximum percent/amount that can be charged.

The industry has a three-tiered system for the distribution of its products. The first tier is the manufacturer, the second tier is the distributor or wholesaler, and the third tier is the retailer. The manufacturer sells or grants licenses based on different criteria. The manufacturer may or may not be located in the state. Each state controls what products may be brought inside its borders. The distributor or wholesaler sells and distributes the products to the retailers.

Responsibility for licensing the sale and distribution of alcoholic beverages is shared jointly, although not equally, between municipal, state, and federal authorities.  Administration of the Federal Alcohol Act is vested in the Treasury Department in the Division of the Federal Alcohol Administration. In some rare instances, a license is required from only one of these authorities. In most cases, there are dual license requirements.

Cost of Goods Sold

In most states liquor stores may purchase goods for resale only from authorized distributors, and not from discount or warehouse stores.

The examiner should consider using a percentage markup on cost method, but the examiner should contact third-party suppliers directly to ensure cost of goods sold is not underreported.


Current shows that 68% of food and drinking sole proprietorships report a net profit. For more detail see the Biz Industry Profitability - Sole Proprietorships webpage. shows averages for this industry:

Total Expenses as a % of Income:   89.1%
Net income as % of Income:   10.9%
Cost of Goods Sold:   42.5%
Salaries and Wages:  15.4%

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Page Last Reviewed or Updated: 11-May-2015