November 20, 2025
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 March 2017 through February 2023.
FACTS
A first-generation audit was conducted on the books and records of the Taxpayer, a Virginia consuming contractor, for the period at issue. In response to the auditor’s request for records, the Taxpayer provided general records including federal tax returns, credit card statements, and bank statements. No source documentation specifically substantiating the payment of Virginia sales and use tax was submitted. Based on the information provided, generated exceptions were determined in the audit for untaxed purchases resulting in an assessment. The Taxpayer filed an application for correction contending that the estimated assessment was calculated using arbitrary values.
ANALYSIS
Dealer Records
The Taxpayer contends that the untaxed purchase totals listed in the audit do not match records provided during the audit. According to the audit report, credit card and bank statements were provided only after a notice that the audit would be assessed and closed.
Virginia Code § 58.1-633 A requires every dealer to keep and preserve suitable records of the sales, leases, or purchases subject to the retail sales and use tax. The dealer must also maintain such other books of account that may be necessary to determine the amount of tax due. This recordkeeping requirement is further explained in Title 23 of the Virginia Administrative Code (VAC) 10-210-470, which promulgates:
Every person who is liable for 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 records must include:
a) A daily record of all cash and credit sales, including sales under any type of financing or installment plan in use;
b) A record of the amount of all merchandise purchased, including a bill of lading, invoice, purchase order, or other evidence to substantiate each purchase;
c) A record of all deductions and exemptions claimed in filing sales or use tax returns, including exemption and resale certificates, returned or repossessed goods, and bad debts;
d) A record of all tangible property used or consumed in the conduct of the business;
e) A true and complete inventory of the stock on hand and its value, taken at least once each year.
The purpose of a sales and use tax audit is for the Department to determine a dealer’s compliance with the relevant Virginia tax statutes and regulations. Because the retail sales and use tax is a transactional tax, the determination as to the taxation of a specific transaction is based on the underlying documents that support that transaction. Thus, documentation must be provided to prove the tax was paid to a vendor on the transaction. See Public Document (P.D.) 00-100 (5/25/2000) and P.D. 25-30 (2/27/2025). Credit card and bank statements rarely, if ever, provide sufficient details to verify whether tax was properly paid on a given transaction, and are, therefore, not sufficient to determine the Taxpayer’s compliance with Virginia law.
Virginia Code § 58.1-103 further provides that records and documents must be available during regular business hours for inspection by the Department. According to the auditor’s report, the Taxpayer refused to allow the Department access to its records at its place of business. While the Department is willing to make accommodations as to how and where records are provided, it is the Taxpayer’s responsibility to make them available.
Estimated Assessment
Pursuant to Virginia Code § 58.1-618, the Department is permitted 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 provided insufficient records of its sales and use tax compliance to be reviewed by the auditor.
The most verifiable information available were amounts reported by the Taxpayer on its income tax returns. The auditor methodology used was consistent with prior determinations issued by the Department in which estimated assessments were issued because the taxpayer’s records were incomplete. See P.D. 97-35 (1/27/1997), P.D. 97-215 (5/12/1997), and P.D. 98-87 (5/8/1998).
DETERMINATION
Pursuant to Virginia Code § 58.1-205, an assessment of tax by the Department is prima facie correct, meant the burden of proof is upon the taxpayer to show that the assessment is in error. In accordance with the documentation provided and the cited authorities, the Department makes the following determinations with respect to the issues raised by the Taxpayer.
The Taxpayer failed to maintain adequate records and make them available for inspection by the Department. Under the circumstances, the audit appropriately applied the best information available at the time of the audit to estimate the Taxpayer's sales and use tax liability. The audit assessment for the period at issue is upheld. No additional interest will accrue provided the outstanding assessment is paid within thirty days of the date of the bill.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at 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 and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4561.Z