Tax Type
Retail Sales and Use Tax
Description
Audit sampling techniques
Topic
Collection of Delinquent Tax
Date Issued
06-28-1991
June 28, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter of November 30, 1990 in which you appeal an assessment dated May 31, 1990 for****************** (the Taxpayer).
FACTS
The Taxpayer is a Virginia corporation engaged in the wholesale and retail sale of office supplies. The Taxpayer is appealing an assessment for the period August, 1987 through February, 1990, resulting from an audit for deficiencies of nontaxed retail sales and nontaxed recurring and fixed asset purchases. The Taxpayer agreed on the sample of December 1988 as representative and average for its business. After the audit, the Taxpayer disagreed with the sample and its inclusion of the recurring purchase of catalogs, specifically, the invoice for catalogs purchased from****************. The Taxpayer contends that inclusion of the invoice establishes an error rate of 55.2% and without it the rate is .3%. The Taxpayer further contends that this invoice is an isolated occurrence and requests that it be excluded from the sample.
DETERMINATION
The courts have held that a tax assessment by proper assessing authorities is prima facie correct and the burden is upon the taxpayer to prove that the assessment is incorrect. Based on the facts presented, there is insufficient proof by the Taxpayer to prove the assessment incorrect.
Sampling is an audit technique of significant value that is widely used in the public and private sectors in all types of audits where a detailed audit would nut prove beneficial to either the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit. The audit techniques in this case were properly applied. Further, the Taxpayer agreed upon the sample audit period upon which the assessment is based as completely representative of the Taxpayer's business. The Taxpayer contends that inclusion of an isolated invoice for catalogs skews the sample in a way that raises the error rate. However, catalogs are a recurring purchase of the Taxpayer and thus not an isolated onetime purchase. To remove the contested invoice would nullify the entire sample.
After consideration of the facts, the current assessment based upon the sample will be upheld, unless a new detailed audit for the entire assessment period can be done. Please contact the department's ******* District office within 30 days of the date of this letter if you wish to have a detailed audit performed, otherwise the outstanding assessment will be due and payable in full.
If you have any questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
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