Tax Type
Retail Sales and Use Tax
Description
Audit sampling techniques; Infrequent purchase
Topic
Collection of Delinquent Tax
Property Subject to Tax
Date Issued
03-28-2001
March 28, 2001
Re: § 58.1-1821 Appeal: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's sales and use tax audit assessment issued to **** (the "Taxpayer"), for the period October 1991 through December 1997.
FACTS
The Taxpayer is a government contractor. The department's audit disclosed purchases of tangible personal property for which the vendor did not collect the sales tax, or the Taxpayer did not accrue and remit the use tax to the Commonwealth. At the Taxpayer's request, the auditor calculated the Taxpayer's deficiency using a sample computation. The Taxpayer disputes the resulting deficiency, stating that the value of one of the purchases in the sample was extremely high in relation to the other purchases. As a result, the Taxpayer has revised the deficiency by removing the purchase from the sample and separately paying tax on that item.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sector in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detail audit. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and the burden of evidence is upon the taxpayer to prove otherwise.
For an item to be removed from the audit sample, the Taxpayer must show that the transaction was isolated in nature and not a normal part of the Taxpayer's operation. It may well be that software purchases are infrequent, but such purchases appear to be an integral part of the Taxpayer's provision of its services.
The purpose of the projection is to account for likely transactions on which the Virginia tax was not properly paid. The removal of the transaction at issue would nullify the purpose and validity of the sample in that other such purchases not included in the sample period may not have been properly taxed. I have enclosed a copy of a previous decision, Public Document 93-198 (09/23/93), which details the department's longstanding position. Based on the foregoing, I do not find sufficient cause to allow for a revision of the audit deficiency.
The Taxpayer should return its payment for balance of the tax and interest and accrued interest totaling $*** to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will continue to accrue on the balance due from the original date of assessment. 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/31967Q
Re: § 58.1-1821 Appeal: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's sales and use tax audit assessment issued to **** (the "Taxpayer"), for the period October 1991 through December 1997.
FACTS
The Taxpayer is a government contractor. The department's audit disclosed purchases of tangible personal property for which the vendor did not collect the sales tax, or the Taxpayer did not accrue and remit the use tax to the Commonwealth. At the Taxpayer's request, the auditor calculated the Taxpayer's deficiency using a sample computation. The Taxpayer disputes the resulting deficiency, stating that the value of one of the purchases in the sample was extremely high in relation to the other purchases. As a result, the Taxpayer has revised the deficiency by removing the purchase from the sample and separately paying tax on that item.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sector in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detail audit. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and the burden of evidence is upon the taxpayer to prove otherwise.
For an item to be removed from the audit sample, the Taxpayer must show that the transaction was isolated in nature and not a normal part of the Taxpayer's operation. It may well be that software purchases are infrequent, but such purchases appear to be an integral part of the Taxpayer's provision of its services.
The purpose of the projection is to account for likely transactions on which the Virginia tax was not properly paid. The removal of the transaction at issue would nullify the purpose and validity of the sample in that other such purchases not included in the sample period may not have been properly taxed. I have enclosed a copy of a previous decision, Public Document 93-198 (09/23/93), which details the department's longstanding position. Based on the foregoing, I do not find sufficient cause to allow for a revision of the audit deficiency.
The Taxpayer should return its payment for balance of the tax and interest and accrued interest totaling $*** to the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within 30 days from the date of this letter. If payment is not received within that time, interest will continue to accrue on the balance due from the original date of assessment. 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/31967Q
Related Documents
Rulings of the Tax Commissioner