Tax Type
Retail Sales and Use Tax
Description
Percentage of error in sample invalid
Topic
Accounting Periods and Methods
Date Issued
03-23-2011
March 23, 2011
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This reply 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 April 2002 through May 2005. I apologize for the Department's delay in responding to your inquiry.
FACTS
The Taxpayer is a general contractor and construction management firm. As a result of the Department's audit, the Taxpayer's expense purchases were sampled for one month. The errors found included deposit payments made in previous periods. The Taxpayer protests the inclusion in the sample of transactions from periods outside the sample month.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sector in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amounts 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. For an item to be removed from the sample, a taxpayer must prove that the transaction was isolated or unusual in nature. Unusual Items invalidate the sample results as they do not reflect the true nature of the transactions reviewed for the sample period. Because the deposit payments were not part of the sample population, the inclusion of these transactions in the computation of the error factor renders the resulting percentage of error and the sample invalid. Therefore, the audit will be returned to the auditor for removal of the deposit payments from the sample. The error factor will be recalculated and the assessment adjusted. A revised audit and bill will be provided to the Taxpayer. The Taxpayer should pay the revised bill within 30 days of receipt to avoid the accrual of any additional interest charges.
If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4326983073.M
Rulings of the Tax Commissioner