Tax Type
Corporation Income Tax
Description
Assessment based on best information available
Topic
Collection of Delinquent Tax
Date Issued
03-08-2000
March 8, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period January 1996 through November 1998. I apologize for the delay in our response.
FACTS
The Taxpayer operates an establishment selling food, alcoholic and non-alcoholic beverages. The Taxpayer's facilities include video games, billiards, darts and other games of skill and chance for its customers' entertainment. The auditor's investigation disclosed that the Taxpayer did not have any cash register tapes or daily records from which to retrieve data for purposes of audit. Due to the lack of documentation reflecting the collection and payment of the retail sales and use tax, the auditor utilized sales figures from the mixed beverage annual review (MBAR) report, which the Taxpayer files with the Virginia Department of Alcoholic Beverage Control. The Taxpayer seeks an adjustment of the department's audit stating that the department's use of the MBAR report overstates taxable sales because income from the games, which is not subject to the sales and use tax, is included in the report.
DETERMINATION
Dealers who are registered for sales and use tax purposes are under a legal obligation to collect and report the proper amount of sales tax to the department. As part of this legal obligation, Code of Virginia § 58.1-633 requires every dealer "to keep and preserve suitable records of the sales, leases, or purchases, . . . and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner." This record keeping requirement is further explained in Title 23 of the Virginia Administrative Code (VAC) 10-210-470, copy enclosed.
When a dealer fails to maintain adequate records, the department is authorized by Code of Virginia §58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists. When an assessment is issued under these circumstances, the above cited statute deems such assessment to be prima facie correct. Accordingly, the burden of proof is upon the Taxpayer to establish through convincing evidence that a tax assessment is erroneous. Based on the foregoing, the Taxpayer clearly has an obligation to substantiate any claim that data used by the department's auditor is overstated.
I will allow the Taxpayer an opportunity to submit verifiable documentation to reflect that the reports used by the auditor are in error. Such documentation should be made available within thirty days from the date of this letter. The Taxpayer should contact the department's ***** District Audit Supervisor, ***** when such information is available. If the information is not available within that time, I shall consider the department's assessment correct as issued, and the balance inclusive of accrued interest from the original date of the assessment will become due and payable.
If you should have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23471Q
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period January 1996 through November 1998. I apologize for the delay in our response.
FACTS
The Taxpayer operates an establishment selling food, alcoholic and non-alcoholic beverages. The Taxpayer's facilities include video games, billiards, darts and other games of skill and chance for its customers' entertainment. The auditor's investigation disclosed that the Taxpayer did not have any cash register tapes or daily records from which to retrieve data for purposes of audit. Due to the lack of documentation reflecting the collection and payment of the retail sales and use tax, the auditor utilized sales figures from the mixed beverage annual review (MBAR) report, which the Taxpayer files with the Virginia Department of Alcoholic Beverage Control. The Taxpayer seeks an adjustment of the department's audit stating that the department's use of the MBAR report overstates taxable sales because income from the games, which is not subject to the sales and use tax, is included in the report.
DETERMINATION
Dealers who are registered for sales and use tax purposes are under a legal obligation to collect and report the proper amount of sales tax to the department. As part of this legal obligation, Code of Virginia § 58.1-633 requires every dealer "to keep and preserve suitable records of the sales, leases, or purchases, . . . and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner." This record keeping requirement is further explained in Title 23 of the Virginia Administrative Code (VAC) 10-210-470, copy enclosed.
When a dealer fails to maintain adequate records, the department is authorized by Code of Virginia §58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists. When an assessment is issued under these circumstances, the above cited statute deems such assessment to be prima facie correct. Accordingly, the burden of proof is upon the Taxpayer to establish through convincing evidence that a tax assessment is erroneous. Based on the foregoing, the Taxpayer clearly has an obligation to substantiate any claim that data used by the department's auditor is overstated.
I will allow the Taxpayer an opportunity to submit verifiable documentation to reflect that the reports used by the auditor are in error. Such documentation should be made available within thirty days from the date of this letter. The Taxpayer should contact the department's ***** District Audit Supervisor, ***** when such information is available. If the information is not available within that time, I shall consider the department's assessment correct as issued, and the balance inclusive of accrued interest from the original date of the assessment will become due and payable.
If you should have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/23471Q
Rulings of the Tax Commissioner