Tax Type
Retail Sales and Use Tax
Description
Taxpayer is in the business of selling communications equipment.
Topic
Appropriateness of Audit Methodology
Records/Returns/Payments
Date Issued
08-10-2010
August 10, 2010
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer"), requesting a reconsideration of the determination letter issued as Public Document 09-118 (7/31 /09) by the Department. I apologize for the delay in responding to your correspondence.
FACTS
The Taxpayer is in the business of selling communications equipment. In a meeting with Department personnel, the Taxpayer presented additional documentation in support of its request for a detailed audit. The Taxpayer maintains that the sample cannot produce an accurate assessment because no similar errors exist outside the sample period. Additionally, the Taxpayer requests a credit in the audit, contending that there are transactions included in the audit for which its customers have paid the tax to the Department.
DETERMINATION
SampIe/Detailed Audit Request
The Taxpayer contends that the sample used in the audit led to an incorrect assessment and requests that a detailed audit be performed. The Taxpayer further contends that transactions should be reviewed for less than 75 of its customers in order to accurately determine the amount of tax due. Noting that a comprehensive review is not needed, the Taxpayer believes that the detailed audit could be completed in a two-week, full-time work schedule. The Taxpayer states that it has documentation for the 75 customers, and it will provide personnel to work with the Department's auditors to complete the detailed audit.
The Taxpayer has presented alternative methods of calculating the assessment due for the audit period at issue, requesting that a detailed audit be conducted by the Department. However, the Taxpayer contends that only certain specific transactions and customers need to be included in the review. As stated in the previous determination letter, the Department would need to review all of the transactions that occurred during the audit period, and all supporting documentation, in order to conduct a detailed audit of the Taxpayer's records. The audit, which sampled a three month period, took approximately a year to complete. A detailed audit would require a significant amount of time and manpower to complete for both the auditor and the Taxpayer.
Additionally, the Taxpayer was given the opportunity to use the Department's Invoice Capture Tool sample procedure during the performance of the audit. The Invoice Capture Tool provides a more comprehensive approach to reviewing a taxpayer's financial records. The Taxpayer chose not to use this procedure and instead opted to use the block sample that it now contends produced an incorrect assessment.
A taxpayer must demonstrate that a sample used in an audit is not representative of the audit period or flawed in some other manner to invalidate the sample. Based upon the information provided throughout the appeal process, the Taxpayer has not proven that the sample is incorrect, or that a detailed audit is warranted with respect to the audit period at issue.
Credit in the Audit
The Taxpayer requests that it be given credit in the audit for instances where its customers accrued the use tax and remitted the same to the Department. In the audit, the Taxpayer was given a credit for all invoices where customers paid the use tax directly to the Department. Accordingly, no additional credit is warranted with respect to the audit period at issue.
CONCLUSION
Based on this determination, the assessment is correct as issued. It is my understanding that the Taxpayer has filed for federal bankruptcy protection. Accordingly, the enclosed schedule provides the updated liability due with interest accrued to date.
The Code of Virginia section cited is 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 response, you may contact ***** in the Department's 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/1-3934096514.P
Rulings of the Tax Commissioner