Tax Type
Retail Sales and Use Tax
Description
Items removed from the audit sample
Topic
Appropriateness of Audit Methodology
Property Subject to Tax
Date Issued
01-08-2002
January 8, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This will reply to your letter in which you seek correction of a retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period March 1996 through February 1999. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer purchased company jackets for its employees. The untaxed purchase of the jackets was included in the audit sample as a recurring expense and extrapolated over the audit period. The Taxpayer claims that the purchase of the jackets is an isolated one-time transaction found in the twelve-month audit sample period. The Taxpayer admits the jackets are taxable; however, the Taxpayer believes that the item should not be included in the extrapolation of the audit sample. The Taxpayer requests the item be removed from the audit sample and taxed separately.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sectors. The department uses sampling in sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. When sampling techniques are properly applied, the result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
The department will remove an item from an audit sample if it is shown that the transaction is isolated in nature and not a normal part of a taxpayer's business activity. Based on the information provided, I agree that the transaction in question meets these criteria and should be removed from the sample. The audit sample will be recomputed on this basis, and the transaction will be taxed separately in the audit.
The attached schedule reflects the changes made to the audit. Accordingly, a refund with applicable interest will be issued. 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/28874T
Rulings of the Tax Commissioner