Tax Type
Retail Sales and Use Tax
Description
Department's statutory authority to deny all the bad debt deductions at issue
Topic
Computation of Tax
Subtractions and Exclusions
Date Issued
09-16-2004
September 16, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ********:
This is in response to your letter requesting correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period October 1999 through September 2002. I apologize for the delay in responding to your
letter.
FACTS
The Taxpayer operates casual clothing stores in Virginia and elsewhere. The audit resulted in tax assessed on nontaxed sales per a reconciliation, denied bad debt write-offs, and untaxed purchases of tangible personal property used in its operations.
The Taxpayer disputes the denied bad debt deductions claimed in connection with worthless accounts using Taxpayer-issued credit cards. The Taxpayer states "all bad debts are written-off in the state where the customer resides." The Taxpayer maintains that "the bad debts generated by instate residents making purchases at stores located outside the state are offset by the bad debts generated by out-of-state residents making purchases at instate stores, plus or minus a very small percentage." The Taxpayer claims that its bad debt deductions for its Virginia stores are computed in accordance with Va. Code § 58.1621, and the Department lacks the statutory authority to deny all the bad debt deductions at issue. The Taxpayer proposes a settlement of 5% of the contested liability, which has been paid.
DETERMINATION
In Public Document (P.D.) 03-16 (3/11/03), I previously addressed the same arguments as the ones presented by the Taxpayer in this case. In that case, it was determined that the Taxpayer's bad debt procedures did not satisfy the criteria for Virginia retail sales and use tax purposes. The bad debt deduction in that case and the instant case are similar. For example, I understand that in both cases:
· The bad debts are written off in the state where the customer resides and not on where the sales originate,
· The finance and late charges are not removed before calculating the Virginia bad debt, and
· Bad debt claims are estimated rather than computed for each bad debt account.
Moreover, I concluded that the taxpayer in that case has the burden of proving an erroneous assessment but failed to satisfy its burden of proof. Those same conclusions apply to the instant case.
CONCLUSION
Based on the facts currently before me, the contested assessment is correct. I also find no basis for accepting the settlement proposed by the Taxpayer.
An auditor will contact you shortly to arrange a time for the Department to conduct a final examination of the Taxpayer's bad debt records. In the event that a final record review is not desired or suitable records are not furnished within a reasonable time set by the auditor, the contested assessment will be deemed correct as issued.
The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/45803
Rulings of the Tax Commissioner