April 2, 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 December 2011 through September 2017.
FACTS
An audit was conducted on the books and records of the Taxpayer, a farm that provides a venue for rent, for the period at issue. The auditor found that the Taxpayer, which was not registered to collect Virginia retail sales and use tax, made untaxed sales and purchases. Because the Taxpayer had not filed returns during the initial audit period, the audit period was extended back for three additional years. The Taxpayer filed an application for correction contending the extension of the audit period is unreasonable because it did not willfully neglect to file returns. The Taxpayer also requests the abatement of penalty.
ANALYSIS
Statute of Limitations
The Taxpayer explains that, before the audit occurred, it was unaware of its responsibility to collect sales tax on its rental of space and lodging. Subsequent to the audit, the Taxpayer has registered to collect and remit sales tax and believes that the tax due for the extended audit period should be abated.
Virginia Code § 58.1-634 provides, in part, that “the Tax Commissioner shall not examine any person's records beyond the three-year period of limitations unless he has reasonable evidence of fraud, or reasonable cause to believe that such person was required by law to file a return and failed to do so.” [Emphasis added]. Thus, the statute does not require a finding of willful neglect in order to extend an audit period. In this case, the auditor found that the Taxpayer should have filed returns during the initial audit period and failed to do so. Under these circumstances, the Department is authorized to examine records beyond the three-year period of limitations.
Amnesty Penalty
The 2017 General Assembly enacted legislation establishing a Tax Amnesty program, spanning a 60- to75-day period that was administered by the Department. The Guidelines for the Virginia Tax Amnesty Program, issued as Public Document (P.D.) 17-156 (9/5/2017), permitted taxpayers with delinquent returns for amnesty-eligible periods to qualified for certain tax payment 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 period for ongoing field audits is the month of April 2017 and prior. The penalty, however, will not be applied to any assessment generated from a field audit of a business for an amnesty-eligible period provided that any uncontested liability, or any contested liability remaining upon resolution of an application for correction under Virginia Code § 58.1-1821 or Virginia Code § 58.1-1825, is paid within 30 days from the date of the conclusion of the proceedings, whichever is latest. In addition, taxpayers may enter into payment plans for amnesty-eligible assessments. Such taxpayers will not be subject to the 20% amnesty penalty provided they remain current on their payment plans.
DETERMINATION
Based on the analysis above, the auditor properly expanded the audit period to six years. The Taxpayer is currently enrolled in a payment plan. The Taxpayer should be aware that interest will continue to accrue on the balance until the assessments are fully satisfied. However, the Taxpayer will not be subject to the 20% amnesty penalty provided, it remains current on their pre-existing plans.
The Code of Virginia sections 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 response, 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/5111.F