Tax Type
Retail Sales and Use Tax
Description
Taxpayer was assessed the tax on underreported sales and untaxed assets
Topic
Computation of Tax
Penalties
Taxable Income
Date Issued
07-01-2010
July 1, 2010
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period August 2006 through March 2008. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer, a restaurant, contacted the Department seeking a refund for taxes overpaid to the Department. While verifying the refund claim, the auditor found that the Taxpayer had consistently made errors in calculating taxable sales when filing its monthly sales tax returns. The error resulted when the Taxpayer deducted voluntary gratuities from gross sales and then deducted them a second time, either in the computation of taxable sales or as exempt sales. Therefore, the auditor conducted a sales and use tax audit to determine whether a tax liability exists. As a result of the Department's audit, the Taxpayer was assessed the tax on underreported sales and untaxed assets. Penalty was applied to tax collected and not remitted.
The Taxpayer disagrees with the auditor's computations and claims that credit was not given in the audit for the overpayment of tax, penalty and interest paid to the Department and to the ***** Commissioner of the Revenue (the "Locality"). The Taxpayer claims that the omission of these credits represents double taxation.
DETERMINATION
Virginia Code § 58.1- 633 states that every dealer required to make a return and collect sales tax "shall keep and preserve suitable records of the sales, leases, or purchases . . . taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner." The record keeping requirement is further explained in Title 23 of the Virginia Administrative Code 10-210- 470.
When a dealer fails to maintain adequate records, the Department is authorized by Va. Code § 58.1- 618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists.
Because the Taxpayer consistently made errors in calculating taxable sales, the auditor reconstructed the tax liability based on tax collected. To determine the retail sales and use tax paid, the auditor deducted from the total tax collected the meals tax paid to the Locality according to the meals tax returns filed by the Taxpayer. The auditor compared the sales tax collected and the tax payments made according to the Department's records. The auditor divided the results by 5% to determine taxable sales for the audit period. The auditor calculated the audit liability taking into consideration penalty, interest, and the dealer's discount.
In this instance, the auditor relied upon the best available information to reconstruct taxable sales to determine the audit liability. The Taxpayer has not provided any documentation or evidence to prove that the method applied in this case is unreasonable. Based on the foregoing, and absent evidence to the contrary, I find that the audit methodology was properly applied. Accordingly, there is no basis to revise the audit assessment.
Regarding the overpayments, the auditor found that the Department's accounting system adjusted two sales and use tax returns that resulted in a total credit of *****, (***** and *****). Based on the Department's records, the auditor was unable to confirm the remaining overpayments claimed by the Taxpayer.
Regarding the Taxpayer's argument that credit should be given in the audit for taxes overpaid to the Locality, these taxes were paid to the Locality and were not remitted to the Department. Therefore, the Taxpayer should seek a refund from the Locality for any taxes that may have been overpaid to such Locality.
CONCLUSION
Based on the above determination, the assessment is correct. The Taxpayer acknowledges that the ***** credit was applied to the final audit report. According to the Department's records, the credit for ***** was outstanding and has been applied to the bill. Refund interest accrued on the overpayments will be calculated and applied to the outstanding liability. An updated bill, with interest accrued to date, will be sent to the Taxpayer. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of the bill.
The Code of Virginia sections and regulation cited are available on-line at www.tax.virginia.gov in the Tax Policy library of the Department's web site. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Linda Foster
Deputy Tax Commissioner
- Linda Foster
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AR/1-3152798174.T
Rulings of the Tax Commissioner