May 5, 2020
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This 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 July 2013 through March 2019.
FACTS
The Taxpayer is a real property contractor headquartered in xxxxxx with a location in Virginia. The Department issued a consumer use tax assessment to the Taxpayer in accordance with Virginia Code § 58.1-618, which authorizes the Department to issue an estimated assessment under certain circumstances. The assessment was issued after several attempts by the auditor to discuss the audit with the Taxpayer and to have the Taxpayer sign and return the Waiver of Time Limitation on Assessment of Taxes (the “waiver”). The assessment was calculated based on the only records available to the auditor, the Taxpayer’s Virginia corporate income tax returns for the tax years 2013 through 2017. The auditor also found that the Taxpayer did not file sales and use tax returns during the audit period.
The Taxpayer contests the audit assessment for the period at issue. The Taxpayer states that is has limited presence in Virginia, but understands the need to comply with Virginia tax law. Accordingly, the Taxpayer requests the opportunity to complete the audit with the Department’s auditor.
DETERMINATION
The General Provisions in Chapter 1 of Virginia Code 58.1 govern all taxes administered by the Department of Taxation and provide the following in Virginia Code § 58.1-102:
It shall be the duty of every taxpayer to retain suitable records and documents substantiating all information contained on any return required by this subtitle and any such other pertinent records or documents as the Tax Commissioner may require by regulation. The records and documents shall be preserved for a period of three years from the required date for filing a return to which such records or documents pertain.
Virginia Code § 58.1-103 further provides that “All records and documents required by this subtitle or by rule or regulation shall be available during regular business hours for inspection by the Tax Commissioner or his duly authorized agents.”
Chapter 6 of Virginia Code 58.1 specifically addresses the Virginia Retail Sales and Use Tax and requires in Virginia Code § 58.1-633 A that dealers “keep and preserve suitable records of the sales, leases, or purchases, as the case may be, 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.” Title 23 of the Virginia Administrative Code 10-210-470 also provides that the taxpayer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”
In this instance, the Taxpayer failed to respond to the auditor’s repeated requests for information in order to commence and perform the audit. In addition, the Taxpayer failed to respond to the auditor’s repeated requests to provide a signed waiver. Pursuant to Virginia Code § 58.1-618, the Department is authorized to use the best information available to determine whether a tax liability exists in instances where the taxpayer does not provide records for review during the Department’s audit. The assessment, based on the Taxpayer’s Virginia corporate income tax returns, was properly issued to the Taxpayer in accordance with Virginia Code § 58.1-618.
The Tax Commissioner has previously addressed instances in which taxpayers failed to provide records for review by the Department and assessments were estimated based on the best available information. See, Public Document (P.D.) 98-4 (1/4/1998), P.D. 16-75 (5/11/2016), P.D. 18-83 (5/9/2018), and more recently P.D. 20-28 (2/7/2020).
In addition, the auditor issued the assessment for a six-year period in accordance with Virginia Code § 58.1-634, which addresses the period of limitations and states that:
The taxes imposed by this chapter shall be assessed within three years from the date on which such taxes became due and payable. In the case of a false or fraudulent return with intent to evade payment of the taxes imposed by this chapter, or a failure to file a return, the taxes may be assessed, or a proceeding in court for the collection of such taxes may be begun without assessment, at any time within six years from such date. The Tax Commissioner shall not examine any person's records beyond the three-year period of limitations unless he has reasonable evidence of fraud, or reasonable cause to believe that such person was required by law to file a return and failed to do so.
CONCLUSION
Based on the information presented, the assessment was properly issued. Notwithstanding the foregoing, I am willing to grant the Taxpayer one final opportunity to provide documentation to the Department for review with respect to the audit period at issue.
The Taxpayer will be contacted by the appropriate field audit staff to discuss the records and documentation the Taxpayer will be required to provide. The Taxpayer must provide all requested records and documentation to the audit staff within 45 days from the date of contact with the auditor. Once the auditor completes the review, revisions to the audit and the audit assessment will be made if warranted. I understand that a lien was issued and the funds collected were applied to the assessment at issue, leaving a balance due. Should the document review and revisions result in a refund, the Taxpayer will also receive refund interest accrued to date.
The Code of Virginia sections, regulation and public documents cited are available on-line at www.virginia.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions concerning this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2151P