Tax Type
Retail Sales and Use Tax
Description
Tax paid to nonregistered vendor; Audit sample techniques
Topic
Collection of Delinquent Tax
Date Issued
08-30-1991
August 30, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear************************
This will reply to your letter of April 1, 1991 in which you seek correction of a sales and use tax assessment on behalf of *********************(the Taxpayer).
FACTS
The Taxpayer sells and installs fire sprinkler systems in buildings. An audit of the Taxpayer for the period November 1987 through October 1990 produced an assessment for its failure to remit use tax on purchases on which no sales tax was paid or use tax accrued. The Taxpayer contests the inclusion of purchases on which the Taxpayer already paid Virginia sales tax to out-of-state vendors. Additionally, the Taxpayer contests the inclusion of mini-blinds in the audit and the use of 1988 and 1989 as the sample period to extrapolate the 1990 tax liability.
DETERMINATION
Miniblinds
The Taxpayer contests the inclusion in the sample period of a set of miniblinds because the blinds were purchased, delivered and used in Maryland. If the Taxpayer can show that to be the case, the item will be removed from the audit.
Sales Tax Already Paid
Several of the out-of-state dealers did not include the Virginia sales tax on their invoices. However, the Taxpayer added the tax to the invoices and paid the tax to its dealers. There are two types of out-of-state dealers to whom the Taxpayer remitted the tax: registered and unregistered.
Virginia Regulation (VR) 630-10-109(A) provides that "[t]he use tax applies to...tangible personal property...when the Virginia sales or use tax is not paid at the time the property is purchased." (Emphasis added.) Because the department has no authority to require out-of-state dealers to register for collection and remittance of the tax unless they have sufficient nexus with the state, the Taxpayer should remit use tax directly to the department if the tax is not stated on the invoice. Otherwise, the Taxpayer runs the risk of being double taxed if the dealer is not registered with the department.
In the instant case, the Taxpayer remitted tax to several dealers who were registered in Virginia. Thus, we will remove from the audit any tax paid to dealers who were registered with the department and who collected and remitted the tax to the department. The Taxpayer, however, will have to seek a refund directly from those dealers who were not registered with the department and did not remit the tax to us.
Sample Period
Sampling is an audit technique of significant value that is widely used in both the public and private sectors. 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 courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and the burden of evidence is upon the taxpayer to prove otherwise. The Taxpayer has not met that burden.
The Taxpayer agreed to the use of 1989 as the sample year for reasons that were beneficial to both the Taxpayer and the auditor and then requested and was granted the inclusion of an additional year, 1988, to produce a more representative sample. The Taxpayer has failed to prove any mitigating circumstances that would justify nonapplication of the agreed upon sample period to 1990 or that would necessitate a detailed audit.
Based upon the foregoing, the audit will be revised to remove tax paid to registered out-of-state dealers provided information is obtained from the Taxpayer verifying that the tax was paid to such dealers, and further provided the Taxpayer has not received a refund or credit of the tax and interest from such dealers.
If you have any further questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner