Tax Type
Retail Sales and Use Tax
Description
Taxpayer requesting full waiver of penalty, and waiver of interest
Topic
Appropriateness of Audit Methodology
Collection of Delinquent Tax
Collection of Tax
Penalties and Interest
Date Issued
04-08-2002
April 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 the retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period April 1997 through March 2000. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is the owner/operator of gas stations/convenient stores. As the result of an audit by the department, the Taxpayer was assessed tax, penalty, and interest on untaxed purchases made during the audit period. This is the second audit of the Taxpayer and use tax compliance ratio was computed to be 11 percent. The Taxpayer contends that the low compliance ratio is directly attributable to a lack of records, which were not available for several reasons, including the implementation of a new accounting system, a physical move of the Taxpayer's headquarters, and personnel changes throughout the audit period.
The Taxpayer believes if the records could be located, the use tax compliance ratio would be comparable to its sales tax compliance ratio of 98 percent. The Taxpayer is requesting that the use tax liability assessed in the audit be reduced to reflect 98 percent use tax compliance. In addition, the Taxpayer is requesting full waiver of penalty, and waiver of interest associated with the reduction in the use tax liability.
DETERMINATION
Code of Virginia § 58.1-633, copy enclosed, addresses dealer's records and provides, in part, the following:
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- Every dealer required to make a return and pay or collect any tax under this chapter shall keep and preserve suitable records of the sales, leases, or purchases, as the case may be, taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner.
Title 23 of the Virginia Administrative Code (VAC) 10-210-470 sets forth the department's regulation with respect to dealer's records and provides that every dealer liable for the collection and remittance of sales and use tax is required to keep and preserve for three years adequate and complete records necessary to determine sales and use tax liability.
When a dealer's records are not available for inspection or examination by the department in the course of an audit, the department must resort to other measures to determine tax liability. The auditor sampled a one-year period (1999) in conducting the purchase portion of the audit. According to the auditor, the Taxpayer's records revealed that the Taxpayer accrued use tax on taxable non-taxed purchases for the first 26 months of the 36-month audit period, and only the first five months of the 12-month purchases sample period, i.e., January 1999 through May 1999. Sales and use tax returns subsequent to May 1999 show no accruals of use tax.
The area of dispute includes payments identified by the auditor for which the Taxpayer could not furnish invoices showing sales tax paid to vendors, nor records of use taxes paid to the department. The auditor extrapolated the use tax liability based on the audit sample and credited the Taxpayer for all use taxes remitted during the audit period.
Based on the statute and the department's regulation with regard to record retention by dealers, I find that the auditor's method of deriving the use tax liability in this audit was a reasonable and appropriate approach to determine the Taxpayer's liability. The Taxpayer has not provided any documentation to indicate the assessment is erroneous. Therefore, I find no basis for adjusting the Taxpayer's use tax compliance ratio or for reducing the assessed tax, penalty and interest.
Accordingly, the assessment as issued is correct and is immediately due and payable. The Taxpayer will receive an updated bill with interest accrued to date. The bill must be paid within 30 days from the date on the bill to avoid the accrual of additional interest. If the bill is not paid within 30 days, interest will accrue on the outstanding balance and collection action will resume.
If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
PD/32632K
Rulings of the Tax Commissioner