Tax Type
Retail Sales and Use Tax
Description
Audit sample techniques; Credit in audit for tax self-accrued by customers
Topic
Exemptions
Property Subject to Tax
Date Issued
04-27-2001
April 27, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****:
This is in reply to your letter in which you seek correction of the department's retail sales and use tax audit assessment issued to **** (the "Taxpayer"), for the period June 1997 through May 2000.
FACTS
The Taxpayer is a manufacturer. The department's audit, based on a one-month sample, disclosed sales on which the tax had not been charged. In some instances, another state's tax was charged on sales where the property was shipped to Virginia customers. The Taxpayer was given the opportunity to contact its customers to verify that the tax had been reported to the Commonwealth by the customer or to collect the tax from the customer.
The Taxpayer states that while the auditor has given credit for taxes paid by its customers for the months they occurred in the sample period, the Taxpayer contends that the credits should be included in the error factor and extrapolated over the audit period. Alternatively, the Taxpayer seeks an expanded sample on the basis that a one-month sample is not adequate. Lastly, the Taxpayer, in lieu of any further revision to the sample, seeks to have the auditor return and perform a detailed audit of its contract sales.
DETERMINATION
Sampling
The use of the sampling technique to examine sales provides a snapshot of the Taxpayer's compliance with its sales tax collection and reporting responsibilities. In general, the types of errors found in a sample would be typical of the types of errors that could be found in the audit period if a detailed audit were performed. However, a detailed audit, based on the size and scope of the Taxpayer's operations, would not prove beneficial either to the auditor or the Taxpayer.
There is always the possibility that isolated errors may occur which are not typical of a taxpayer's operations. However, for an item to be removed from an audit sample, a taxpayer must establish that the transaction was an isolated event and not a normal part of its operations. The courts have held that a tax assessment is prime facie correct, and the burden is upon the taxpayer to prove that the assessment is incorrect.
While the Virginia tax on some of the transactions may have been paid by the customer, there are likely similar transactions outside the sample period on which the Virginia tax has not been paid. Therefore, to remove the sales in question from the sample base would distort the sample and nullify its validity. Accordingly, I find the audit sample to be a valid representation of the Taxpayer's period of audit.
Credits
The department has previously addressed the issue of credits included in sample calculations. In those prior cases, sales held taxable in the audit in which the customers self-assessed the use tax were contested. The department upheld the sales audit techniques while finding no basis for recalculating the sales error factors. However, as in the Taxpayer's case, credit was given against the assessment for the taxes paid by the customers. See the enclosed Public Documents 97-51 (2/10/97)
, 95-93 (04/28/95), and 95-59 (03/27/95). Based on all of the foregoing, and the longstanding position of the department, I do not find sufficient cause to allow for any adjustment to the audit's sample computations. Consequently, the balance of the department's assessment remains due and payable.
The Taxpayer should return its payment for the balance of tax and interest totaling *** to ****of 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 accrue on the balance due from the original date of the assessment. If you should have any questions regarding this matter, please contact *** at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner