Tax Type
Individual Income Tax
Description
Audit Contestment; Incomplete or Missing Records
Topic
Appropriateness of Audit Methodology
Returns/Payments/Records
Date Issued
11-02-2001
November 2, 2001
Re: § 58.1-1821 Application: Individual Income Tax and Consumer Use Tax
Dear *****
This will reply to your letter in which you seek correction of the individual income tax assessments issued to you (the "Taxpayer") for the 1992 through 1996 taxable years. You also seek correction of a consumer use tax assessment issued for the period March 1992 through February 1998. I apologize for the delay in the department's response.
FACTS
During the years at issue, the Taxpayer, a Virginia resident, operated a contracting business as a sole proprietorship. Upon an audit of the business, the department discovered that the Taxpayer had not filed individual income tax returns with Virginia. In addition, the Taxpayer did not pay any consumer use tax on the materials used in the business. Due to a lack of records, the auditor estimated the Taxpayer's business receipts and assessed individual income and consumer use taxes. The estimates were based on an audit of a similar contracting business. The Taxpayer appeals the assessments, contending that the actual income during the years in question was less than the amounts on which the assessment is based.
DETERMINATION
Individual Income Tax
Code of Virginia § 58.1-341 provides that a Virginia resident, who is required to file a federal income tax return, must file a Virginia income tax return, unless the resident is exempt from filing under Code of Virginia § 58.1-321. Additionally, under Code of Virginia § 58.1-321, even if a resident is not required to file a federal income tax return, the resident is required to file a Virginia income tax return when the Virginia adjusted gross income exceeds the filing threshold. As the Taxpayer is a Virginia resident, his income is subject to Virginia taxation. Consequently, the Taxpayer is required to file Virginia income tax returns and pay the proper tax.
Consumer Use Tax
Code of Virginia § 58.1-610(A) provides that a person who contracts to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon and who furnishes tangible personal property is deemed to have purchased the tangible personal property for use or consumption. If the supplier, from which the contractor purchases tangible personal property, is not registered to collect the sales and use tax or if the supplier inadvertently does not collect the sales and use tax, the contractor must report and pay the tax directly to the department on a Consumer Use Tax Return, Form ST-7. Because the Taxpayer did not file the appropriate consumer use tax returns, the sales and use tax audit was conducted and an assessment was issued.
Estimated Assessments
Pursuant to Code of Virginia § 58.1-111, the department has the authority to estimate tax liability when a person refuses to file a valid return. Further, Code of Virginia § 58.1-205 states that in any proceeding relating to the interpretation of the tax laws of the Commonwealth of Virginia, an "assessment of a tax by the Department shall be deemed prima facie correct." Additionally, Code of Virginia § 58.1-312, provides that an assessment can be issued at any time if a return is not filed.
Due to a lack of information provided by the Taxpayer, the department estimated the Taxpayer's tax liability and issued assessments of tax accordingly. Subsequent to the issuance of the assessments, the Taxpayer filed Virginia individual income tax returns with the department for all of the years in question. As such, the individual income tax assessments have been adjusted. Also, the consumer use tax assessment has been adjusted to reflect the information provided by the Taxpayer.
The attached schedule shows the Taxpayer's revised assessments of tax, penalty and interest for the taxable years of 1992 through 1996. The total amount of the assessments of ***** should be remitted within 30 days from the date of this letter to avoid further accrual of interest. You may remit your payment to ***** Policy Development, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions, you may call ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22536G
Rulings of the Tax Commissioner