April 5, 2022
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 September 2014 through August 2017. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a commercial wholesaler of cabinets. As a result of the Department’s audit and due to a lack of documentation, the Taxpayer was assessed retail sales and use tax for untaxed exempt sales, general expense purchases and fixed asset purchases. The Taxpayer appeals, contending sufficient documentation was provided to support untaxed sales to exempt customers as well as general expense and fixed asset purchases, and requests the assessment be abated.
DETERMINATION
Virginia Code § 58.1-633 A states:
Every dealer required to make a return and pay or collect any tax under this chapter shall 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 (VAC) 10-210-470, which interprets Virginia Code § 58.1-633, states “[e]very person who is liable for the collection of sales tax or remittance of use tax or both is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.” Such documentation includes records for all tangible personal property used or consumed in the conduct of business and records for all merchandise purchased including bills of lading, invoices, purchase orders, and other evidence to substantiate each purchase.
In Public Document 08-29 (4/2/2008), the Department addressed a number of scenarios concerning sales and use tax recordkeeping requirements. In one instance, the Department ruled that the presentation of invoices demonstrating sales tax regularly paid to vendors is not sufficient evidence to remove multiple transactions with the same vendor from an audit. The Department reviews transactions based on the documentation presented for each transaction. This is consistent with longstanding and established policy that the retail sales and use tax is a transactional tax, and the determination as to the taxation of a specific transaction is based on the underlying documents that support the transaction. Thus, documentation must be provided to prove the tax was paid on each transaction with a vendor.
The Taxpayer did not respond to the auditor’s request for records documenting exempt sales to customers and purchases by the business over numerous occasions. After multiple delays, the Taxpayer provided documentation insufficient to support untaxed transactions with customers and no evidence regarding the payment of taxes on purchases by the business. No additional documentation regarding exempt sales or purchases has been provided with the appeal. The Taxpayer provided Retail Sales Agreements for two vehicles, however, the auditor had obtained the necessary information for these assets from the depreciation schedules provided by the Taxpayer’s representative.
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 or purchases to determine whether a tax liability exists. In this instance, the Taxpayer did not provide complete and relevant records to the auditor, so the auditor utilized the best available information to examine and estimate the liability. The auditor utilized profit and loss statements that had been matched with the Taxpayer’s ST-9s and extrapolated the error rate based on the Taxpayer’s ST-9 data.
CONCLUSION
Virginia Code § 58.1-205 deems assessments issued by the Department to be prima facie correct. This means that the burden of proving the assessment is incorrect rests upon the Taxpayer. The provision of adequate records and other documentation is necessary to prove that the tax assessed on the audit is incorrect. In this instance, the Taxpayer has not met the burden of proof. Furthermore, 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 erroneous assessment is attributable to the taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law.
Because the Taxpayer has failed to provide documentation in compliance with Virginia Code § 58.1-633 and Title 23 VAC 10-210-470, the assessment is upheld. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 60 days of the date of the bill.
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/1984.A