Tax Type
Retail Sales and Use Tax
Description
Charge for license fee included in sample used in the audit for calculating liability
Topic
Accounting Periods and Methods
Appropriateness of Audit Methodology
Date Issued
05-25-2007
May 25, 2007
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 period August 2000 through July 2003. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer contends that the charge for a license fee should not be included in the sample used in the audit for purposes of calculating the Taxpayer's tax liability. The Taxpayer maintains that it does not regularly incur charges for license fees and that the inclusion of this charge results in a higher assessment of tax than required.
DETERMINATION
Sampling
Sampling is an audit technique of significant value that is widely used in both the public and private sectors for all types of audits where a detailed audit would not prove beneficial either to the auditor or the client. When sampling techniques are applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit. The purpose of the audit sample is to determine a factor for errors within a representative select period. Once the error factor is determined, the factor is extrapolated over the entire audit period. The purpose of the projection is to account for likely similar transactions on which Virginia tax has not been paid.
Public Documents 99-66 (4/15/99) and 04-204 (11/23/04) set forth the Department's policy with respect to samples and explain that an item cannot be removed from the audit sample unless the transaction is isolated in nature and not a normal part of the taxpayer's operations, regardless of whether the item is a large dollar transaction or that it may constitute a large percentage of the taxable measure in the audit sample.
The Taxpayer's basis for removal of the license fee does not meet the criteria set out in the prior rulings cited above. The purchase of the license fee is not isolated in nature. The license fee is a software license fee that applies to up to 3,000 workspaces and covers a three-month period. As a technology consultant, it is reasonable that the Taxpayer would make such a purchase, and thus, the purchase is deemed a normal part of the Taxpayer's operations.
Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed prima facie correct. The burden is on the taxpayer to prove the assessment is erroneous. The Taxpayer has not met that burden in this case.
Based on the foregoing, the contested purchase was properly included in the sample and the assessment is correct as issued. 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 30 days from the date of the bill.
The Code of Virginia section and public documents cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/57150P
Rulings of the Tax Commissioner