May 11, 2016
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of *****, in which you seek reconsideration of the Department's prior determination regarding credit for sales tax paid to suppliers and for the gross revenue percentage applied to snow clearing services.
FACTS
The Taxpayer provides fleet and private service companies with mobile maintenance and 24-hour emergency road service. During the Department's audit, the Taxpayer did not provide any sales records to determine the audit liability. Therefore, the auditor used bank statements, ticket books, corporate returns and the prior audit to estimate the tax liability. The Taxpayer filed an appeal, and a determination letter was issued by the Department (Public Document 15-41 (3/18/15)), which upheld the assessment of tax for underreported sales. The Department's determination also denied credit in the audit for sales tax the Taxpayer claims was erroneously paid to vendors on tangible personal property for resale.
In its request for reconsideration, the Taxpayer contends that the Department's instruction to seek a refund or credit from the vendor for sales tax erroneously paid on purchases for resale is clearly punitive and grossly inequitable. Accordingly, the Taxpayer feels it only appropriate that it receive credit against the audit assessment for all of the sales tax erroneously paid to vendors.
The Taxpayer also seeks reconsideration regarding the auditor's estimated percentage of gross revenue calculated for snow clearing services. The Taxpayer argues that a significant percentage of its gross revenue is related to exempt snow clearing services that should not be included in the audit liability. The Taxpayer requests additional time to obtain documentation from its customers regarding the amount paid during the audit period for snow clearing services.
DETERMINATION
Credit
While the Department prefers to refund the tax through the dealer to prevent misallocations of the local sales tax, the Department will allow credit against the assessed tax for sales tax paid to vendors on untaxed tangible personal property for resale held in the audit provided the tax paid can be verified. In this instance, no records were available to verify that the sales tax was erroneously paid to vendors; therefore, the auditor properly denied the credit.
After reviewing the audit report and the information previously submitted, I find no basis to change the Department's position. The Taxpayer cannot provide a list of vendors and purchases and state that the sales tax was erroneously paid on such purchases without providing adequate evidence to support its claim. As such, the Taxpayer has not proven that it is entitled to a credit. Absent such evidence, there is no basis to revise the Department's audit.
Audit Methodology
Because the Taxpayer provided no records during the audit to determine the sales tax liability, the auditor conducted a one-year sample of the Taxpayer's bank statements, corporate tax returns and ticket books. In this instance, the auditor used the best information available to estimate taxable sales. Absent evidence to the contrary, I ruled in the prior determination that the audit methodology applied by the auditor was appropriate.
Virginia Code § 58.1-205 sets out that any assessment of a tax by the Department is deemed prima facie correct. This means that the burden of proving that the assessment is erroneous is upon the Taxpayer. Similarly, for appeals to the circuit court, subsection D of Va. Code § 58.1-1825 states that it is the taxpayer's burden to show that the assessment complained of is erroneous or otherwise improper."
As of the date of this letter, the Taxpayer has not furnished any documentation in support of its contentions, although ample time was allowed. In the absence of convincing evidence to support the Taxpayer's contentions, I find no basis for an adjustment to the assessment.
CONCLUSION
Based on all of the foregoing, there is no basis to change my prior determination. Accordingly, the assessment is correct as issued and remains due and payable. An updated bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill to avoid additional interest charges. The Taxpayer should remit its payment to: Virginia Department of Taxation, 600 East Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-6028411308.T