Tax Type
Retail Sales and Use Tax
Description
Audit sample techniques; Request item removal from sample
Topic
Collection of Delinquent Tax
Date Issued
09-23-1993
September 23, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will reply to your letter of June 1, 1993 in which you seek correction of a sales and use tax assessment for, **************(the "Taxpayer").
FACTS
The Taxpayer operates as a vendor of computer software and equipment. An audit for the period February 1988 through December 1990 produced an assessment for certain untaxed sales and untaxed purchases. While the Taxpayer does not disagree with the taxable status of the sales, it maintains that an invoice for an extended warranty for computer hardware was improperly included in the percentage of error computation because it was a single isolated transaction
The Taxpayer requests that the invoice for the extended warranty be excluded from the computation of the sales tax percentage of error. Further, the Taxpayer requests a refund of taxes and interest assessed based on the incorrect error factor.
DETERMINATION
Despite the Taxpayer's contentions, I find no basis for the removal of the extended warranty agreement from the audit sample. The courts have held that a tax assessment is prima facie correct and the burden is upon the taxpayer to prove that the assessment is incorrect. The Taxpayer has not met this burden.
The Taxpayer agreed to the use of October 1990 as a sample month for reasons that were beneficial to both the Taxpayer and the auditor. I would note that the auditor requested a two month sample period, but the Taxpayer asked for a one month period for which all invoices for the month would be provided. There is no evidence provided to dispute the accuracy of the sample technique used by the auditor. In fact, the Taxpayer's letter indicates that it is not "in disagreement to the sampling technique" employed by the auditor.
For an item to be removed from the audit sample, the Taxpayer must show that the transaction was isolated in nature and not a normal part of the Taxpayer's operation. While you have submitted invoices and a letter indicating that the purchase of the extended warranty in question was a single, isolated transaction for the particular customer who made the purchase, extended warranties were available to other customers who purchased computer equipment. Such extended warranties may have been sold outside the sample period and may have gone untaxed. In fact, the auditor noted the presence of other large sales in other months that may have gone untaxed but were not included in the sample period. As such, I cannot agree that the contested transaction was outside the Taxpayer's normal operations.
The fact that the Taxpayer began collecting tax on extended warranties as of April 1, 1989 (or for 60% of the audit period) does not warrant removal of the invoice in question from the percentage of error computation. It should be noted that the untaxed invoice in question was from the sample period of October 1990, well after the time you claim the Taxpayer started collecting tax on extended warranties.
Accordingly, I find that the assessment was correct as made, and I must deny your request for refund.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/7043F
Rulings of the Tax Commissioner