Document Number
21-104
Tax Type
Retail Sales and Use Tax
Description
Unreported Sales - Dealer Records
Topic
Appeals
Date Issued
08-10-2021

August 10, 2021

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 assessments issued for the period March 2015 through February 2018. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer, a specialty restaurant and bar, was assessed tax and interest for underreported sales of alcoholic beverages and food. The Taxpayer was also assessed tax, interest, and penalty for taxes collected but not remitted to the Department. Before the audit period, the Taxpayer had not filed returns for the taxable period September 2017 through February 2018. During the audit, the Taxpayer filed returns for the missing periods, but did not pay the amount owed. The auditor reviewed the available records and found that the sales tax returns filed by the Taxpayer for the audit period did not match the Mixed Beverage Annual Review (MBAR) report or point of sale (POS) summary reports provided during the audit. In addition, the Taxpayer did not provide complete POS summary reports for the entire audit period.

The Taxpayer submits an administrative appeal claiming that the sales were not underreported for the audit period in question. The Taxpayer contends that the sales tax reported on its tax returns and MBAR report are not accurate because it purchased alcohol to use in preparing food and desserts. The Taxpayer believes the assessment should be revised and proposes to amend its sales tax returns. The Taxpayer includes revised figures in its appeal correspondence, but does not include any documentation or amended returns with its appeal.

DETERMINATION

The Taxpayer states that its filed sales tax returns do not match the figures provided on the MBAR report because the restaurant uses alcohol in desserts and cooking. The Taxpayer states that it uses approximately 14 barrels of beer for cooking each year and contends that this alcohol would not be reflected in sales records reported to the Department of Alcoholic Beverage Control (ABC). 

During the audit, the Taxpayer met with the auditor to review serving sizes and pricing to determine an accurate measure of alcohol sales. During the meeting, the auditor notes that the Taxpayer mentioned using brandy in cooking and this was excluded from the mixed beverage sample, but did not report using beer in the preparation of food for sale. Further, the records reviewed during the audit do not show that beer was used in meal preparation. In addition, the records reviewed during the audit did not indicate that beer was used in making desserts. 

After the initial meeting, the auditor continued to work with the Taxpayer to gather complete information and documentation to determine an accurate measure of sales. The auditor’s comments indicate that the Taxpayer later agreed to meet with the auditor to submit missing POS reports, but did not appear. The auditor was also unable to reach the Taxpayer to finalize the audit. When the Taxpayer did not respond or provide the necessary records for review, the audit was finalized using the best information available as permitted under Virginia Code § 58.1-618. 

Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed prima facie correct. The burden is on the taxpayer to prove the assessment is erroneous. In addition, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer’s willful failure or refusal to provide the Department with necessary information as required by law. Despite a number of requests by the Department, the Taxpayer failed to provide sufficient evidence to refute the validity of the assessments. 

Based on evidence provided, I find no basis for adjusting the Department's audit. Accordingly, the assessments are upheld. Updated bills, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessments are paid within 60 days from the date of this letter. 
    
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 about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

 

Craig M. Burns
Tax Commissioner

AR/1797.G
 

Rulings of the Tax Commissioner

Last Updated 10/22/2021 08:51