How Does the Comptroller Use Pour-Cost and Depletion Analysis to Estimate Unreported Sales?

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When a mixed beverage audit cannot rely on a business’s records, the Texas Comptroller does not simply give up and accept the reported numbers. It estimates what the business should have sold by comparing the alcohol it purchased against the sales it reported, using assumptions about how much alcohol goes into each serving. That method, often described as pour-cost or depletion analysis, is how a missing-records audit produces an assessment, and understanding its mechanism is the key to understanding both its force and its weak points.

This page explains how the method works and where its assumptions can be questioned. It is general information, not tax or legal advice.

The core mechanism: purchases versus reported sales

The logic runs in one direction. A business buys a known quantity of liquor, beer, and wine. Each of those translates, at some assumed serving size, into a number of drinks. Those drinks, at the business’s prices, translate into expected sales. The Comptroller compares that expected figure against what the business actually reported, and the gap becomes the basis for an estimate of unreported sales and unpaid tax.

This is fundamentally different from adding up receipts. It does not start from what the business says it sold; it starts from what the business bought and works forward to what it should have sold. That is why it is sometimes called a depletion analysis: it tracks how the purchased inventory was depleted into sales.

Where the assumptions come from

The estimation rests on assumptions, and Comptroller Rule 3.1001 supplies default ones for when records are not available. The rule provides that, in the absence of records, the Comptroller will presume all alcohol purchased was sold, and that, absent records or evidence to the contrary, the Comptroller may use an average pour size of:

  • 1.25 ounces for liquor,
  • 16 ounces for a malt beverage, and
  • 6 ounces for wine.

Those pour sizes are the engine of the estimate. Combined with the presumption that purchased alcohol was sold, they let the auditor convert raw purchase volumes into an estimated number of servings, and then into estimated sales. The smaller the assumed pour, the more servings a given volume yields, and the higher the estimated sales.

Why the method can overstate, and where it can be questioned

The strength of the method, that it works even without the taxpayer’s records, is also where it can diverge from a business’s reality. The assumptions are defaults, applied “in the absence of records or evidence to the contrary,” which is precisely the opening for a business that has kept good records.

Several assumptions are open to scrutiny on the facts:

  • The everything-was-sold presumption. The estimate assumes purchased alcohol became taxable sales. Real operations involve spillage, breakage, comped or complimentary drinks, cooking use, promotional pours, and other dispositions that are not ordinary taxable sales. Records documenting these can rebut the blanket presumption.
  • The pour size. The default pour sizes are averages. A business whose actual pours differ, or whose records show its real serving practices, has a basis to challenge an estimate built on the defaults. Because pour size drives the servings-per-bottle math, a difference here moves the estimate substantially.
  • Product mix and pricing. Reconstructions can be sensitive to how purchases are categorized and priced. Detailed records of what was bought, at what size, and sold at what price let a business test whether the reconstruction reflects its actual operation.

The rule’s own framing, that the defaults apply absent records or evidence to the contrary, is the doctrinal hook: the way to contest a depletion estimate is generally to supply the records and evidence the estimate assumed did not exist.

What this means in practice

The operator who wants to be able to test a depletion analysis keeps records detailed enough to challenge the audit’s assumptions. That means documenting not just sales but the things the everything-was-sold presumption ignores, such as spillage, breakage, comps, and any non-sale use, and keeping purchase and pour records granular enough to address serving sizes and product mix.

The central insight is that pour-cost and depletion analysis is an estimate built on default assumptions, and that those defaults govern only when the business cannot produce records to the contrary. A business that can document its actual operation has a path to question the estimate; a business that cannot is left with an assessment built on presumptions designed to resolve uncertainty against the taxpayer. How an assessment is then negotiated down or formally appealed is addressed separately.

This article is for general educational purposes only and is not tax or legal advice. It does not create an attorney-client relationship and does not guarantee that any estimate can be reduced or that any challenge will succeed. Texas tax law and Comptroller rules change, and audit methodology depends on the specific facts. The presumptions and pour sizes described here should be confirmed against current primary sources. For advice about a specific situation, consult a licensed Texas attorney or qualified tax advisor.

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