Tax Type
Retail Sales and Use Tax
Description
Untaxed sales, an out-of-state lessor of tangible personal property
Topic
Appropriateness of Audit Methodology
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
12-10-2001
December 10, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *********
This is in response to your letter seeking correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an out-of-state lessor of tangible personal property. An audit for the period April 1994 through July 1997 resulted in the assessment of use tax assessed on untaxed sales made by the Taxpayer.
The Taxpayer takes exception to the tax assessed on several items, including tax on:
-
- the estimated personal property tax billed on terminated units,
items sold for which an exemption certificate was received, and
various other items addressed below.
- the estimated personal property tax billed on terminated units,
The Taxpayer maintains that the contested charges are not taxable and requests a refund of the contested tax and interest paid. The department's records indicate that the contested assessment has been paid in full.
DETERMINATION
Based on the documentation provided, I find basis to revise the audit by:
-
- removing sales of equipment made to *****,
changing the taxable amounts for the leases with *****,
removing charges to ***** and
removing the estimated personal property tax charges in connection with *****.
- removing sales of equipment made to *****,
Customer
The equipment lease included in this audit for this customer was also assessed in the prior audit. It is my understanding that the Taxpayer had received the prior work papers in July 1994 and had started to charge tax on this customer's lease in August 1994. The Taxpayer feels that the inclusion of this lease in the July 1994 sample period would not be a fair representation of the tax deficiencies for the entire audit period.
Generally, a sample will not be revised unless it is clearly shown that the sample is not representative or is flawed in a manner that would invalidate the sample. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and that the burden is upon the taxpayer to prove otherwise. In this case, the Taxpayer has not met this burden.
Although the Taxpayer corrected the tax status on this lease by August 1994, it is my understanding that the Taxpayer failed to collect any tax on this lease for the period April 1994 through July 1994. Furthermore, the Taxpayer has not shown that other customer leases assessed in the prior audit were all taxed by August 1994 or before. Therefore, I find insufficient basis to remove this lease from the sample.
Estimated Personal Property Taxes
The Taxpayer maintains that it charged and reported Virginia sales tax on leased assets and on personal property tax billings to customers for active leases. The Taxpayer maintains that it is only liable for the difference between the tax owed on the estimated charges and the tax actually paid on the personal property tax billings.
On several occasions, the auditor requested all supporting records for the billing of estimated personal property tax for the audit period. In particular, the auditor had requested an estimated personal property tax payment received report covering the entire audit period. However, I understand that the Taxpayer failed to submit such report to the auditor and claimed that it would be too time consuming to manually reconstruct the report. Although the Taxpayer has furnished records in connection with the estimated personal property tax charges included in the audit, I understand that the records furnished thus far are not sufficient to completely substantiate the Taxpayer's claims.
In order to make an adjustment to the audit for this issue, the department must have all of the records previously requested by the auditor in connection with this issue. Pursuant to Code of Virginia § 58.1-633 (copy enclosed), every dealer is required to keep and preserve suitable records of the sales, leases, and purchases subject to the sales and use tax in order to substantiate the tax liability of the dealer. In this case, not enough information has been furnished to make a proper determination of whether a refund is due on this matter. Unless the auditor receives all of the information requested to review this issue, the estimated personal property tax charges included in this audit cannot be revised.
Conclusion
The audit will be revised in accordance with this determination. For the issues agreed upon for removal in this determination, the overpaid tax and audit interest will be refunded to the Taxpayer as soon as practical. The refund will also include interest owed by the department pursuant to Code of Virginia § 58.1-1833.
If you have any questions about the revision, please contact *****, Senior Auditor of the department's at *****. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/22064R
Rulings of the Tax Commissioner