Document Number
22-84
Tax Type
Retail Sales and Use Tax
Description
Administration: Taxpayer Records - Failure to Retain or Provide Documentation
Topic
Appeals
Date Issued
04-28-2022

April 28, 2022

Re:    § 58.1-1821 Appeal: Retail Sales and Use Tax
    
Dear *****:

This will respond to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the “Taxpayer”) as a result of an audit by the Department for the period November 2018 through July 2021. 

FACTS

The Taxpayer, a cigarette retailer, failed to file sales and use tax returns for the period at issue. Under a compliance program that verifies compliance regarding cigarette purchases for resale and sales of cigarettes by a retailer or wholesale dealer, the Taxpayer was issued an assessment for tax and interest on untaxed cigarettes purchased from several wholesale clubs. The assessment is based on purchases made by the Taxpayer exempt from the sales tax. The Taxpayer appeals, contending it received incentives from cigarette manufacturers that were not considered in the audit. 

DETERMINATION

The Taxpayer alleges that incentive payment reports from ***** and ***** (the “Vendors”), if taken into consideration, would reduce its tax liability and corresponding assessment. During the audit, the auditor accepted evidence of certain incentive payments that applied to certain periods and reduced the Taxpayer’s tax liability. However, the Taxpayer has been unable to provide all of the Vendors’ incentive payment reports and the information it has provided fails to include specific payment details as to date and amounts and missing product descriptions. During this appeal, the Taxpayer informed the Department that it received correspondence from the Vendors that the documentation requested could not be made available.  

Pursuant to Virginia Code § 58.1-205, any assessment of tax by the Department is prima facie correct, meaning the burden of proof is upon the Taxpayer to show that the assessment is incorrect. Additionally, Virginia Code § 58.1-633 and Title 23 of the Virginia Administrative Code 10-210-470 provide that every dealer required to make a return and collect sales or use tax must keep and preserve adequate and complete records to determine the amount of tax liability. This requirement necessarily includes records of incentive or rebate payments. 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 tax liability exists. 

Because the Taxpayer has not and cannot provide the referenced evidence, it has not met its burden of proof to show that the assessment is incorrect.  Accordingly, the assessment is upheld. An updated bill with accrued interest to date will be mailed to the Taxpayer soon. The Taxpayer should remit payment or enter into a repayment agreement with the Department within 60 days of the date on the bill to avoid possible collection action.

The Code of Virginia sections and regulation cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****, or via email at *****. 

Sincerely,

 

Craig M. Burns
Tax Commissioner

                    

AR/4048-C

Rulings of the Tax Commissioner

Last Updated 08/05/2022 13:15