Tax Type
Retail Sales and Use Tax
Description
Tax included in sales price of beverages by restaurant, Inadequate records
Topic
Collection of Delinquent Tax
Returns/Payments/Records
Date Issued
03-30-2000
March 30, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the department's sales and use tax audit assessment issued to your client, **** (the "Taxpayer"), for the period August 1995 through July 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a restaurant. The department's audit revealed that the Taxpayer included the tax in the sales price of alcoholic beverages and remitted the tax based on a percentage of gross receipts. The auditor assessed the tax, penalty, and interest based on unreported sales of alcoholic beverages.
The auditor's review revealed that the Taxpayer did not maintain adequate sales records to substantiate the amount of sales reported to the department during the audit period. For instance, the Taxpayer had only kept daily totals of register tapes as proof of daily sales. Further, the Taxpayer did not maintain records of "happy hour" sales. Therefore, the auditor used a purchase mark-up method to determine the tax liability. To derive the cost-of-goods sold percentage, the auditor analyzed both unit cost and sales prices, taking into account the Department of Alcoholic Beverage Control (ABC) standard percentage for spillage and breakage. The auditor also used information the Taxpayer furnished to the ABC on its sales and purchases.
The Taxpayer is taking exception to the auditor's method to derive taxable sales and believes that the resulting assessment overstates their tax liability. The Taxpayer provides an analysis of its sales tax liability and maintains that it should be used to calculate the tax liability.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-470 provides, in part, that every dealer liable for the collection and remittance of sales and use tax is required to keep and preserve for at least three years adequate and complete records necessary to determine its sales and use tax liability.
When complete records are not available for inspection and examination by the department in the course of an audit, the auditor must resort to other measures to determine the actual tax liability. In such instances, the department is authorized under Code of Virginia § 58.1-618 to estimate the tax liability and assess the tax estimated to be unpaid. This statute deems such estimated assessments to be prima facie correct. Although the statute allows the department to estimate tax liabilities when complete records are not available, I would note that the statute does not allow taxpayers to estimate their tax liabilities. Instead, the statute requires every dealer to be able to prove its actual tax liability.
As the Taxpayer failed to maintain adequate records during the audit period to substantiate its actual tax liabilities, the auditor used the available records for the period in question to estimate the Taxpayer's tax liability. Although I appreciate the Taxpayer's efforts to present an analysis of its sales tax liability, I find that this analysis does not provide sufficient basis to warrant revision of the assessment. For example, the Taxpayer has not provided evidence to substantiate the gross sales used to determine the tax liability. Further, the Taxpayer excluded from its analysis the audit period December 1997 through July 1998 in its calculation of the tax liability.
Based on all of the foregoing, and absent evidence to the contrary, I find that the audit methodologies and the markup factors applied in this case are acceptable. Accordingly, there is no basis to revise the audit findings. The sales and use taxes assessed to the Taxpayer are valid.
The Taxpayer will receive a revised bill, with interest accrued to the date of protest. This bill should be paid within 30 days from the date of the revised bill to avoid the accrual of additional interest. Payment should be sent to the Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this determination, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22708T
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This will reply to your letter in which you seek correction of the department's sales and use tax audit assessment issued to your client, **** (the "Taxpayer"), for the period August 1995 through July 1998. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a restaurant. The department's audit revealed that the Taxpayer included the tax in the sales price of alcoholic beverages and remitted the tax based on a percentage of gross receipts. The auditor assessed the tax, penalty, and interest based on unreported sales of alcoholic beverages.
The auditor's review revealed that the Taxpayer did not maintain adequate sales records to substantiate the amount of sales reported to the department during the audit period. For instance, the Taxpayer had only kept daily totals of register tapes as proof of daily sales. Further, the Taxpayer did not maintain records of "happy hour" sales. Therefore, the auditor used a purchase mark-up method to determine the tax liability. To derive the cost-of-goods sold percentage, the auditor analyzed both unit cost and sales prices, taking into account the Department of Alcoholic Beverage Control (ABC) standard percentage for spillage and breakage. The auditor also used information the Taxpayer furnished to the ABC on its sales and purchases.
The Taxpayer is taking exception to the auditor's method to derive taxable sales and believes that the resulting assessment overstates their tax liability. The Taxpayer provides an analysis of its sales tax liability and maintains that it should be used to calculate the tax liability.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-470 provides, in part, that every dealer liable for the collection and remittance of sales and use tax is required to keep and preserve for at least three years adequate and complete records necessary to determine its sales and use tax liability.
When complete records are not available for inspection and examination by the department in the course of an audit, the auditor must resort to other measures to determine the actual tax liability. In such instances, the department is authorized under Code of Virginia § 58.1-618 to estimate the tax liability and assess the tax estimated to be unpaid. This statute deems such estimated assessments to be prima facie correct. Although the statute allows the department to estimate tax liabilities when complete records are not available, I would note that the statute does not allow taxpayers to estimate their tax liabilities. Instead, the statute requires every dealer to be able to prove its actual tax liability.
As the Taxpayer failed to maintain adequate records during the audit period to substantiate its actual tax liabilities, the auditor used the available records for the period in question to estimate the Taxpayer's tax liability. Although I appreciate the Taxpayer's efforts to present an analysis of its sales tax liability, I find that this analysis does not provide sufficient basis to warrant revision of the assessment. For example, the Taxpayer has not provided evidence to substantiate the gross sales used to determine the tax liability. Further, the Taxpayer excluded from its analysis the audit period December 1997 through July 1998 in its calculation of the tax liability.
Based on all of the foregoing, and absent evidence to the contrary, I find that the audit methodologies and the markup factors applied in this case are acceptable. Accordingly, there is no basis to revise the audit findings. The sales and use taxes assessed to the Taxpayer are valid.
The Taxpayer will receive a revised bill, with interest accrued to the date of protest. This bill should be paid within 30 days from the date of the revised bill to avoid the accrual of additional interest. Payment should be sent to the Department of Taxation, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this determination, please contact **** in the Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22708T
Rulings of the Tax Commissioner