Tax Type
Retail Sales and Use Tax
Description
Sales tax not collected sold items not supported by valid exemption certificates
Topic
Exemptions
Records/Returns/Payments
Date Issued
02-29-2008
February 29, 2008
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 November 2003 through December 2006.
FACTS
The Taxpayer is a retail chain store. The Department's audit disclosed that the Taxpayer sold various items to customers and did not collect tax. The sales were not supported by valid exemption certificates, and the Taxpayer was unable to provide documentation supporting the exempt sales. The auditor included these sales in the audit sample and assessed tax. The Taxpayer disagrees with the audit results, citing one sale that is of a large dollar amount. The Taxpayer believes the sale should be taxed separately and not included in the audit sample.
DETERMINATION
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 detail audit would not prove beneficial to either 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 detail 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.
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 business activity. While the Taxpayer claims that the contested sale does not represent a typical sale, this claim does not, by itself, render the sample inaccurate. It may well be that the sale amount is large, but it appears to be consistent with the Taxpayer's normal business sales.
Public Documents 99-66 (4/15/99) and 04-204 (11/23/04) are on point with the facts of the Taxpayer's case. These documents 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 operation, 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.
Upon review of the audit report and the information presented, I find no basis to remove the contested sale from the sample. Virginia Code § 58.1-205 provides that a tax assessment issued by the Department is deemed prima facie correct. The burden is upon the taxpayer to prove otherwise. The Taxpayer has not met this burden. Accordingly, the assessment is correct.
An updated 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 from the date of this letter.
The public documents cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's website, located at www.tax.virginia.gov. If you have any questions about this determination, you may contact the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1776770888i
Rulings of the Tax Commissioner