06-55 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Taxpayer was unable to provide adequate records to perform the audit.

Topic

Accounting Periods and Methods

Assessment

Exemptions

Records/Returns/Payments

Date Issued

05-31-2006

May 31, 2006

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear ****************:

This will reply to your letter in which you seek correction of assessments issued to *********** (the "Taxpayer") for the periods May 1998 through September 2003 ("Assessment A") and October 2003 through December 2004 ("Assessment B"). I apologize for the delay in responding to your letter.

FACTS

The Department audited and issued the Taxpayer two assessments. The Department issued estimated assessments for both audit periods because the Taxpayer was unable to provide adequate records to perform the audit. The Taxpayer maintains that the assessments are erroneous because the audit includes nontaxable purchases, purchases on which tax was paid to the vendor, purchases on which sales tax was overpaid to the vendor, purchases on which use tax was accrued, purchases on which use tax was accrued and overpaid, and purchases that qualify for exemption. The Taxpayer has provided an itemized summary of the audit exceptions that it believes should be removed from the audit.

DETERMINATION

Pursuant to Va. Code § 58.1-633 A, every dealer required to file a retail sales and use tax return and pay or collect such tax must keep and preserve suitable records of the sales, leases, or purchases, as the case may be, subject to the retail sales and use tax. The dealer must also maintain such other books of account as may be necessary to determine the amount of tax due, and "such other pertinent information as may be required by the Tax Commissioner."

Because of the condition of the Taxpayer's records, the Department was unable to verify that sales and use tax had been paid on many of the transactions selected in the Department's sample. Original invoices could not be found for transactions selected in the audit sample. The Taxpayer had filed returns interchangeably under two different account numbers. The Taxpayer had reported sales and purchases as a combined amount on the returns and could not produce the original documentation that showed a separate accounting of the sales and purchases reported on the returns.

The Taxpayer's sales tax liability was computed by comparing monthly sales figures located and provided by the Taxpayer to sales reported on the Taxpayer's Virginia returns. The Department assessed sales tax on underreported sales for several months of the audit period. The Department estimated the Taxpayer's use tax liability for expense purchases based on a spreadsheet generated by the Taxpayer. The payment of sales or use tax could not be verified for many of the items included in the spreadsheet. The use tax liability for purchases of fixed assets was computed based on a general ledger listing of assets placed in service during the audit period. Again, many of the purchase invoices were unavailable to verify payment of tax.

Assessment A

Because of the delays experienced by the Department to conduct the audit, Assessment A was issued by the Department to protect the statute of limitations for the period May 1998 through September 2003. This assessment was issued November 26, 2003.

Virginia Code § 58.1-1821 states, "Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner." [Emphasis added.] In this case, Assessment A issued to the Taxpayer was dated November 26, 2003. Pursuant to the provisions of Va. Code § 58.1-1821, the Taxpayer was required to file its administrative appeal for Assessment A no later than February 24, 2004.

The Department's records indicate the Taxpayer filed an intent to appeal Assessment A on May 17, 2005, almost 18 months after the date of assessment. The Taxpayer's actual appeal of the assessment was filed on June 23, 2005. Both of these filings were made well after the expiration of the 90-day limitations period. Therefore, the Taxpayer's application for correction of Assessment A filed pursuant to Va. Code § 58.1-1821 is barred by the statute of limitations. Assessment A is considered correct and is now due and payable.

Assessment B

This assessment was issued April 27, 2005. The Taxpayer filed a timely appeal of Assessment B on June 23, 2005. The Taxpayer contests a number of transactions and issues in its appeal of Assessment B. Many of the issues raised in the Taxpayer's appeal letter require the review of documentation that the Taxpayer has now provided the Department. For this reason, I will refer this matter to the Department's audit staff. An auditor will contact the Taxpayer to schedule a time to review the documentation provided by the Taxpayer and determine if adjustments to the audit are warranted. Assessment B will be revised accordingly.

CONCLUSION

The Taxpayer's appeal of Assessment B will remain open until the audit staff has completed its review of the Taxpayer's documentation and made any necessary adjustments to Assessment B. The Taxpayer will be allowed 60 days after the audit staff has completed its review to notify the Department in writing of any remaining contested issues from the original appeal that relate to Department policy or interpretation of the law.

The Code of Virginia sections and regulations cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department of Taxation's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/57258S

Rulings of the Tax Commissioner