February 08, 2022
Re: Offer in Compromise: 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 September 2016 through August 2019.
The Taxpayer operates as retail chain that sells home furnishings. The Taxpayer was audited for the period at issue, and issued a sales tax assessment that includes compliance penalty and amnesty penalty assessments. The Taxpayer states that it agrees with the audit findings, and understands that the audit liabilities are in fact owed to the Department. However, the Taxpayer requests that the compliance and amnesty penalties assessed in the audit be abated in full. The Taxpayer maintains that it has made timely sales tax filings and payments for several years.
Compliance Penalty
Title 23 of the Virginia Administrative Code (VAC) 10-210-2032 B 1 provides that “The application of penalty to audit deficiencies is mandatory and its application is generally based on the percentage of compliance determined by computing the dealer’s compliance ratio.”
Title 23 VAC 10-210-2032 B 5 provides that for audits subsequent to second generation audits, “penalty will generally be applied unless the taxpayer’s compliance ratios meet or exceed 85% for sales tax and 85% for use tax, as computed by the auditor or under the alternative method.”
Virginia Code § 58.1-635 A provides that:
When any dealer fails to make any return and pay the full amount of the tax required by this chapter, there shall be imposed, in addition to other penalties provided herein, a specific penalty to be added to the tax in the amount of six percent if the failure is for not more than one month, with an additional six percent for each additional month, or fraction thereof, during which the failure continues, not to exceed 30 percent in the aggregate…. If such failure is due to providential or other good cause shown to the satisfaction of the Tax Commissioner, such return with or without remittance may be accepted exclusive of penalties. [Emphasis added.]
The audit at issue is a third generation audit. The Taxpayer’s use tax compliance ratio as computed in the audit is 81%. In accordance with Title 23 VAC 10-210-2032, the compliance penalty was assessed in the audit because the Taxpayer’s use tax compliance ratio does not meet the ratio required by the regulation of 85%. While I appreciate the Taxpayer’s diligence in filing returns and remitting the tax over the years, the Taxpayer has not demonstrated that the failure to pay the full amount of tax due during the audit period was “due to providential or other good cause” as provided in Virginia Code § 58.1-635. Accordingly, I find that the compliance penalty was properly assessed in the audit, and abatement of the compliance penalty is not warranted.
Amnesty Penalty
The 2017 General Assembly enacted legislation establishing a Tax Amnesty program, spanning a 60-75 day period that was administered by the Department. The Guidelines for the Virginia Tax Amnesty Program are addressed in Public Document 17-156 (9/5/2017). Taxpayers with delinquent returns for amnesty-eligible periods qualified for amnesty benefits. Any tax liability that was eligible for amnesty benefits but remained unpaid is subject to a 20% amnesty penalty in addition to all other penalties. The amnesty-eligible periods for ongoing field audits is the month of April 2017 and prior. In this instance, the amnesty penalty was assessed because the compliance penalty was assessed on the use tax assessment in the audit. Accordingly, the amnesty penalty was properly applied and I do not find cause for abatement in this instance.
CONCLUSION
In accordance with this determination, the audit assessment is correct as issued and the request for abatement of the compliance and amnesty penalties is denied. 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 60 days from the date of this letter.
The Code of Virginia sections, regulation and public document 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 response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3911P