Tax Type
Retail Sales and Use Tax
Description
Sales sample used to extrapolate the tax deficiency
Topic
Assessment
Clarification
Date Issued
06-08-2005
June 8, 2005
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 assessment issued to ***** (the "Taxpayer"), for the audit period May 2000 through September 2003. I apologize for the delay in the Department's response.
FACTS
As a result of the Department's audit, the Taxpayer was assessed tax on various purchases and sales. The Taxpayer protests the inclusion of two items in the extrapolation of the sales sample. The Taxpayer claims that these items are unusually large and are not representative of the audit period. The Taxpayer also asserts that the tax was not applied to the transactions because the end user was outside the state of Virginia. The Taxpayer maintains that the contested sales should not be part of the sales sample used to extrapolate the tax deficiency, but rather should be 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 final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
Because of the Taxpayer's high sales volume, the auditor used a one-month sample to examine sales made during the audit period. At the conclusion of the audit, the Taxpayer questioned the initial sample because of the two large transactions. The auditor agreed to expand the sample to include an additional month. In both instances, the auditor found recurring errors in which the Taxpayer failed to collect the tax on sales that were clearly taxable.
Despite the Taxpayer's contentions, I can find no basis for the removal of the protested items from the audit sample. 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. Based on the information presented, the Taxpayer has not met this burden. For an item to be removed from the audit sample, the Taxpayer must show that the transaction is isolated in nature and not a normal part of the Taxpayer's operation. While the two transactions in this case constitute a large percentage of the taxable measure in the audit sample, the Taxpayer has provided no evidence that the contested sales are isolated in nature and not a normal part of the Taxpayer's business activity.
Based on the foregoing, the assessment is correct as issued. An updated bill, including accrued interest, will be issued to the Taxpayer. The updated bill must be paid within 30 days to avoid the accrual of additional interest.
If you have any questions about this determination, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/51219T
Rulings of the Tax Commissioner