Tax Type
Retail Sales and Use Tax
Description
General contractor purchased tangible personal property for its use
Topic
Accounting Periods and Methods
Property Subject to Tax
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 in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period July 1997 through May 2003. I apologize for the delay in this response.
FACTS
The Taxpayer is a general contractor. An audit conducted by the Department revealed that the Taxpayer purchased tangible personal property for its use without paying sales or use tax. The auditor used an audit sample and extrapolated the purchase information evenly over the entire audit period. You contend that certain purchases, including retail store fixtures, retail store signs, business management software and promotional items, were incorrectly included in the sample. You maintain that these purchases are extraordinary in nature because they are not typical of purchases made by a contractor and represent one-time purchases that have not occurred in the prior years and are not likely to occur in the future.
DETERMINATION
Sample
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 the taxpayer's business activity. See Public Document (P.D.) 01-28 (03/28/01).
Retail Store Fixtures and Retail Store Signs
Virginia Code § 58.1-610(A) provides that "[a]ny person who contracts . . . to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption."
Title 23 of the Virginia Administrative Code (VAC) 10-210-410(A) interprets Va. Code § 58.1-610 and provides that, unless otherwise noted, the law treats every contractor as the user or consumer of all tangible personal property furnished to him or by him in connection with real property contracts.
In this instance, the Taxpayer is a contractor with respect to real estate. As such, the Taxpayer is deemed the taxable user and consumer of the tangible personal property it purchases. The Taxpayer has not provided documentation indicating that the purchase of retail store fixtures and retail store signs is uncommon to its industry or to its normal business activity. Accordingly, based on the lack of information provided, there is no basis to remove these items from the audit sample.
Business Management Software
As previously mentioned, for an item to be removed from the audit sample the taxpayer must show that the transaction was isolated in nature and not a normal part of the taxpayer's operation. Furthermore, the courts have held that a tax assessment is prima facie correct and the burden is upon the taxpayer to prove that the assessment is incorrect.
In this instance, the Taxpayer contends that the purchase of business management software should be removed from the sample. While the Taxpayer may not purchase business management software on a regular basis, it stands to reason that the Taxpayer regularly makes purchases of other items of tangible personal property that are used as a normal part of its business operations. Based on the limited information provided with your letter, there is no basis for removing the business management software from the audit sample.
Promotional Items (Golf Outing)
The Taxpayer contends that the purchase of the promotional items should not be included in the sample because it is not likely to recur because the result of the promotional effort did not justify the cost.
In P.D. 02-103 (6/24/02), the taxpayer contested the inclusion of the purchase of promotional pens in the audit sample. The Department stated that while the taxpayer may not have normally engaged in this type of specific advertising, it is likely that the taxpayer made other types of advertising purchases. The Department determined that while the taxpayer may not have normally purchased promotional pens, the taxpayer provided no evidence to suggest that the purchase was isolated in nature.
In the instant case, the Taxpayer has not provided any evidence to suggest that the purchase of the promotional items for the golf outing is isolated in nature. Furthermore, there is no information indicating that the Taxpayer did not engage in other advertising or promotional transactions. In accordance with P.D. 02-103, without such evidence there is no basis for removing these items from the sample.
Conclusion
Based on the foregoing, the Taxpayer has not demonstrated that the sample is flawed or that the assessment is erroneous. Accordingly, the assessment is correct as issued. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest or penalties will accrue provided the outstanding assessment is paid within thirty days of the date of this letter. The Taxpayer should send its payment to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 1880, Richmond, Virginia 23218-1880, Attention: *****.
The Code of Virginia sections, regulation 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 response, you may contact ***** at *****.
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- Sincerely,
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- Kenneth W. Thorson
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- Tax Commissioner
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- Kenneth W. Thorson
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AR/48148P
Rulings of the Tax Commissioner