Tax Type
Retail Sales and Use Tax
Description
Restaurant underreported taxable sales
Topic
Assessment
Local Power to Tax
Taxable Income
Date Issued
06-08-2005
June 8, 2005
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear **********:
This is in response to your letter in which you seek abatement of the retail sales tax assessment issued to ***** (the "Taxpayer") for the period July 2001 through June 2004. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates two restaurants in ********* (the "City"). Under audit, the Department determined that the Taxpayer had underreported taxable sales and issued an assessment. While the Taxpayer does not contest the findings of the auditor, the Taxpayer contends it made a reasonable effort to set up its cash registers to charge the proper sales tax and local meals tax rates. The Taxpayer requests abatement of the sales tax assessment based on mitigating circumstances.
DETERMINATION
Virginia Code § 58.1-603 imposes the sales tax upon the "sales price" of tangible personal property sold in the Commonwealth. "Sales price" is defined in Va. Code § 58.1-602 as "the total amount for which tangible personal property or services are sold . . . ." In the Taxpayer's case, retail sales tax was remitted based on the amount of tax collected instead of total taxable sales.
The Taxpayer states that it was unable to obtain a copy of the local meals tax rate table and therefore was unable to properly calibrate its point-of-sale registers. As a result, the Taxpayer added the state sales tax, 4.5%, and the local meals tax rate, 3.5%, for a total sales tax rate of 8.0% on sales at the restaurants. Because the state and local rates were combined, the Taxpayer divided the amount of tax collected by 8% to determine taxable sales to report on its sales tax returns. The Department's audit revealed that this methodology resulted in the understatement of taxable sales on the Taxpayer's sales tax returns because of rounding differences.
In examining this issue, a question arises as to whether the Taxpayer exercised reasonable care and judgment to ensure that it was charging the proper Virginia retail sales and use tax rate and the proper local meals tax rate. The Taxpayer contends that numerous attempts were made to obtain a local meals tax rate table and the City's failure in providing the table resulted in the Taxpayer's error programming its point of sale system. The Taxpayer was aware, however, that the retail sales and use tax and the City's meals tax were imposed at different rates and administered by separate government agencies. In addition, the Taxpayer was provided a copy of the Virginia retail sales and use tax table. In light of this knowledge, it is reasonable to assume that the Taxpayer could have programmed the point-of-sale registers to collect the proper amount of Virginia sales tax.
Based on the foregoing, I find no basis to abate the assessment. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within thirty days of the date of this letter.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's website, located at www.policylibrary.tax.virginia.gov. 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
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AR/52190.i
Rulings of the Tax Commissioner