Tax Type
Retail Sales and Use Tax
Description
Audit sample techniques
Topic
Collection of Delinquent Tax
Penalties and Interest
Date Issued
06-25-1993
June 25, 1993
Re: §58.1-1821 Appeal: Retail Sales and Use Tax
Dear***********
This will reply to your letter of August 21, 1992 requesting abatement of penalty assessed ********** (the "Taxpayer") as the result of a recent audit.
FACTS
The Taxpayer was audited for the period April 1988 to March 1991. While the Taxpayer does not contest the tax assessed, it contends the compliance ratio calculated by the auditor is in error. The Taxpayer contends the compliance ratio should be 80% and thus no penalties should apply.
The Taxpayer bases its calculation upon the following: (1) the audit sample actually covers a period of 15 months as opposed to the 12 months applied in the audit; (2) the use measure reported should be consistent with the sample period chosen; and (3) the compliance ratio should be adjusted to take into account tax erroneously paid to another state.
DETERMINATION
Audit Sample Period: While the Taxpayer contends the sample covers 15 instead of 12 months, this is not the case. It is my understanding that the Taxpayer filed its invoices by the date invoices were paid. While the date listed on the audit report represents the invoice date, the sample only includes invoices actually paid from April 1990 to March 1991. As such, the sample period includes only those purchases for which tax should have been remitted to the department for a 12 month period.
Use Measure Reported: The department's consistent formula for computing a compliance ratio includes the actual amount of use tax reported for the audit period. As such, no sample calculation is used to compute this amount. Thus, the use measure reported was correctly listed.
Erroneously Paid Tax: While the Taxpayer did erroneously remit tax to another state, this is not a new issue. In fact, the Taxpayer was advised in a previous audit about the correct application of the tax in these instances. Therefore, I see no basis for adjusting the compliance ratio for this issue. Additionally, even if the compliance ratio were adjusted to remove those items at issue, the compliance ratio would only be 60%, an amount still well below the 75% compliance ratio required for a third generation audit.
Accordingly, I find no basis for an abatement of the assessed penalty. As the assessment has been paid in full, no adjustments are warranted.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6405D
Rulings of the Tax Commissioner