Tax Type
Retail Sales and Use Tax
Description
Audit sampling techniques
Topic
Collection of Delinquent Tax
Date Issued
05-31-1989
May 31, 1989
Re: §58.1-1821 Application/ Sales and Use Tax
Dear******************
This will reply to your letter of March 13, 1989 seeking correction of an assessment recently issued to************* (taxpayer), for the period September, 1985 through August, 1988.
FACTS
In connection with its printing business, the taxpayer was assessed for its untaxed sales to three customers which failed to qualify for tax exemption or for which it did not have exemption certificates on file. The taxpayer does not contest the application of the tax to such transactions, but rather that the sampling technique used by the department's auditor unfairly skewed the results to the taxpayer's disadvantage. The taxpayer contends that a detailed audit of all invoices to these three customers over the entire audit period would have produced a lower assessment.
The taxpayer also seeks the waiver of all penalties assessed on its untaxed purchases contending that none of the items assessed in the instant audit were assessed in any previous audit.
DETERMINATION
Sampling is an audit technique of significant value and is widely used in all types of audits where a detailed 100% audit would not prove beneficial to either the auditor or the client. If the techniques are understood and properly applied, the ultimate result should be within a very narrow percentage range of the actual amount that would be determined by a full 100% audit.
As indicated in the enclosed August 24, 1984 ruling of the department, before requiring that a detailed audit be conducted, a taxpayer must show that a truly representative sample period cannot be identified and that the only way to accurately compute its liability is through a detailed audit. The taxpayer in this case has not shown that the sample used by the auditor was invalid or that the sample overstated its tax liability. In addition, the detailed audit proposed by the taxpayer would not more accurately reflect its liability since it excludes untaxed sales by the taxpayer to customers other than those identified in the months sampled.
Virginia Retail Sales and Use Tax Regulation (VR) 630-10-80(C)(1), copy enclosed, provides in part that:
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- [A]bsent indications of fraud, penalty will be waived on the first audit of all taxpayers. on a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances. (Emphasis added).
- [A]bsent indications of fraud, penalty will be waived on the first audit of all taxpayers. on a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances. (Emphasis added).
Based on all of the foregoing, I find no basis for correction of the assessment which was previously paid in full.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner