Tax Type
Retail Sales and Use Tax
Description
Sample method employed by the department during an audit.
Topic
Appropriateness of Audit Methodology
Penalties and Interest
Date Issued
03-11-2002
March 11, 2002
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 April 1998 through October 2000. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a manufacturer located outside Virginia. The Taxpayer disagrees with the sample method employed by the department during an audit. The Taxpayer contends that the audit results are substantially inaccurate and seeks a revision of the deficiency by requesting a detailed audit of its sales.
DETERMINATION
Sampling is a widely used audit technique that is employed when a detailed audit would not prove beneficial either to the auditor or the client. The use of such a method has been proven to produce final results within a narrow percentage range of the actual amount that would have been determined by a detailed audit.
In this case, the department's auditor scheduled the Taxpayer's gross sales for the audit period. From this schedule, sample months were selected, an error factor developed based on the sample relative to the overall gross sales population, and applied to the individual monthly totals of the gross sales base amount. The resulting measure was the basis for the audit deficiency.
The courts have held that a tax assessment is prima facie correct and that the burden is upon the taxpayer to prove that the assessment is incorrect. Based on the information before me, the Taxpayer has not met this burden. Additionally, as the auditor has not deviated from the procedures used as a basis in other sample audits, I do not find cause to grant the Taxpayer a hearing on the proven and established methods used by the department's auditors. Consequently, the department's assessment is correct and there is no basis for revision.
You state that the auditor did not leave copies of the department's audit and supporting documents, nor did the auditor participate in a post audit conference to further discuss the end results. I will have the department's auditor contact the Taxpayer's office to provide any department records relating to the gross sales base, the auditor's computation methods or any other documentation that may help the Taxpayer understand the sample method and the resulting deficiency. The auditor will also be available to discuss the methods used and any other issues that would have been discussed during a post-audit conference. The auditor will contact the Taxpayer's office within the next ten business days to arrange a meeting.
Once all of the issues have been discussed and addressed, the Taxpayer may seek a reconsideration of this decision under Code of Virginia § 58.1-1821. Please note, however, that any additional protest of the sample computations will not be addressed unless the Taxpayer has verifiable proof that the sample computations are inaccurate.
If you should have any questions regarding this matter, please contact ***** of the department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/34883Q
Rulings of the Tax Commissioner