May 8, 2019
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessment issued for the period January 2015 through December 2017.
FACTS
The Taxpayer is a specialty retailer selling arts, crafts, and floral merchandise to customers in Virginia. An audit conducted by the Department concluded the Taxpayer had failed to pay or accrue tax on taxable purchases from certain vendors. The Taxpayer contends the sample methodology was incomplete, inaccurate and did not represent the audit period. The Taxpayer also contends the auditor did not review an adequate number of invoices to determine the tax liability and requests a different sample methodology.
DETERMINATION
Sample Methodology
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 detailed audit would not prove beneficial either to the auditor or the client. When sampling techniques are properly applied, the final results are usually within a narrow percentage range of the actual amount that would have been determined by a detailed audit. The purpose of the audit sample is to determine a factor for errors within a representative selected 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. Likewise, this same methodology is used when considering transactions on which Virginia tax has been overpaid. Every effort is made to select objectively the sample periods that are representative of the period being audited.
At the onset of the audit, the auditor confirmed with the Taxpayer that the sample months chosen were, in fact, representative of the entire audit period. Once confirmed, the auditor requested all invoices for the two sample months. The Taxpayer could not produce all of the invoices and, instead, provided supply disbursement reports. Utilizing purchase transactions from the disbursement reports and other data, the auditor generated the taxable exceptions list for the two sample months and calculated the error factor. The auditor extrapolated the error factor for all 36 months of the audit period.
Upon review of the audit report and information presented, I find no basis to invalidate the sample and extrapolation. While the Taxpayer claims the sample methodology was incorrect and an adequate number of invoices were not reviewed, the Taxpayer has not provided any documentation to invalidate the methodology or indicate the assessment is otherwise erroneous. Pursuant to Virginia Code § 58.1-205 1, an assessment issued by the Department of Taxation is deemed prima facie correct. Accordingly, the burden of proof is upon the taxpayer to establish that an assessment is erroneous. The Taxpayer has not met that burden in this case.
CONCLUSION
Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Please remit payment to: Virginia Department of Taxation, 600 E. Main Street, 23rd Floor, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia section cited, along with other reference documents, 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 concerning this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1843L