January 11, 2021
Re: § 58.1-1821: 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 June 2017 through December 2020.
FACTS
The Taxpayer, a retailer with a location in Virginia, was audited for the periods at issue. As a result of the audit, the Taxpayer was assessed tax for underreported sales and untaxed general expense and fixed asset purchases. The auditor used state and federal tax return filings to estimate the assessment because the Taxpayer did not provide the requested records for review during the audit. The Taxpayer contests the sales tax collected unremitted portion of the audit and submits additional documentation for review.
DETERMINATION
Dealer Records
Virginia Code § 58.1-633 provides that every dealer required to make a return and collect sales tax “shall keep and preserve suitable records of the sales, leases, or purchases… 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.” The record keeping requirements are set out in Title 23 of the Virginia Administrative Code 10-210-470. When a dealer fails to maintain adequate records, the Department is authorized by Virginia Code § 58-1-618 to use the best information available to reconstruct a dealer's sales and purchases to determine whether a tax liability exists.
When the Taxpayer failed to provide sufficient records, the auditor reviewed the Taxpayer’s gross sales reported on its federal tax return filings and compared this to the gross sales reported on its state tax return filings. The federal returns indicated underreported sales. The auditor used this data to determine the monthly taxable average for underreported sales, which was included in the assessment as tax collected unremitted.
The auditor requested sales records, such as register tapes and computerized register transactions, to reconcile the sales tax filings. The Taxpayer failed to provide the necessary records during the audit, or with the appeal. The Taxpayer claimed during the audit that these records are not available for review. In the absence of documentation necessary to determine the sales, the estimated assessment is upheld.
The records submitted with the appeal are insufficient to verify sales. The auditor notes that the Taxpayer makes cash and credit card sales. The bank statements submitted with the appeal are for charge deposits and do not include cash deposits. These records are unreliable because the cash sales made by the Taxpayer are not included. Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed to be prima facie correct and that the burden is on the taxpayer to prove the assessment is erroneous or incorrect. In this instance, the Taxpayer has not provided the necessary documentation to support its contention that the assessment of tax is incorrect. Therefore, the Taxpayer has not met the burden of proof requirement.
Based on this determination, the assessment is correct as issued. An updated 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 60 days from the date of this letter.
The Code of Virginia sections and regulation 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/3818.G