Tax Type
Retail Sales and Use Tax
Description
Audit questions relating to advertising services
Topic
Appropriateness of Audit Methodology
Penalties and Interest
Property Subject to Tax
Date Issued
01-14-2002
January 14, 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 retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period February 1995 through December 1997. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a public relations firm and has undergone its third audit with the department. As a result of the audit, the Taxpayer was held liable for certain untaxed purchases used in connection with the provision of advertising services. The Taxpayer contends that it has been given contradictory instructions in each of its audits regarding the application of the sales and use tax to its business operations. Because of this, the Taxpayer believes it should not be held liable for the tax, penalty and interest assessed in the current (third) audit. The Taxpayer has paid the assessment.
DETERMINATION
Contested Purchases
The department has previously addressed the Taxpayer's allegations of misinformation in a determination dated October 26, 1995. At the conclusion of the second audit, the Taxpayer maintained that it had been instructed by the prior auditor that all purchases used directly in advertising were exempt from the tax. A review of the first audit documentation revealed that the same or similar items were held taxable in the first audit. Therefore, it was concluded that the Taxpayer had been properly informed that such items were in fact taxable.
In the instant case, the current auditor assessed the tax on items similar to those taxed in the prior audits. A review of the documentation for the three audits indicates that each auditor assessed the tax in accordance with the guidance set out in the advertising regulation found in Title 23 of the Virginia Administrative Code (VAC) 10-210-41. The regulation provides that advertising businesses are engaged in providing professional services and are the users and consumers of all purchases of tangible personal property for use in such businesses. In accordance with the regulation, the tax applies to all purchases by the Taxpayer for use in its advertising business. I cannot agree with the Taxpayer that it has been given contradictory instructions by the department's auditors, as there is no evidence of such provided by the Taxpayer or contained within the documentation for each audit. Therefore, I find no basis for adjustment to the tax in the current audit assessment.
Waiver of Penalty
Title 23 VAC 10-210-2032 provides for the mandatory application of penalty to an audit assessment based on the level of compliance exhibited by the Taxpayer. The regulation also states that the application of penalty to audit deficiencies will not be waived on second and subsequent audits for other than exceptional mitigating circumstances. Penalty is generally applied to the use tax on third or subsequent audits unless the compliance ratio meets or exceeds 85%. The use tax compliance ratio in this third audit was only 15% and there have been no exceptional mitigating circumstances presented. As such, there is no basis to waive the penalty in this instance.
Waiver of Interest
In regard to the interest, the application of interest to assessments is mandatory in accordance with Code of Virginia § 58.1-15. The interest cannot be waived unless the associated tax is waived. Since the tax has not been waived in this instance, there is no basis to waive the interest.
I have enclosed copies of the cited authorities for your information. If you have questions concerning this letter, you may contact ***** Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/16635J
Rulings of the Tax Commissioner