Tax Type
Retail Sales and Use Tax
Description
Audit sample techniques; Use of error factor
Topic
Collection of Delinquent Tax
Date Issued
10-27-1993
October 27, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear***********
This will reply to your letter of April 8, 1992 in which you seek correction of a sales and use tax assessment to your company,**************(the "Taxpayer"), for the period September 1987 through April 1990.
FACTS
The Taxpayer, a dental supply company, contests the assessment on the grounds that the error factor utilized by the auditor resulted in three months during which the taxable sales exceeded gross sales. You suggest that a more equitable assessment would be to base the assessment upon the relationship of exempt sales to total sales in the sample months.
DETERMINATION
Audit sampling is the application of an audit procedure to less than 100% of the entire population within an account balance or source of transactions for the purpose of estimating the balance of such account. Sampling is a technique widely used in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client.
The findings which result from the use of an audit sample are not intended to project an exact taxable measure for each period within the audit, but to estimate the measure for the entire population. When the taxable measure is determined by multiplying the error factor******** by the total gross sales for the entire audit period******** the resulting measure is the same as that which would have resulted from extrapolating on a month by month basis. Therefore, the Taxpayer's contention that taxable sales for the months of March 1988, September 1989, and December 1989, exceed gross sales for the same periods, is without merit.
The error ratio used in computing the tax in the instant case was based upon the audit sample period which was agreed to by the Taxpayer. Further, the method used in calculating the error ratio has historically and consistently been used by the department with other taxpayers.
Thus, the audit techniques in this case were properly applied and there was a narrow range of error resulting in accuracy and fairness to the Taxpayer. The courts have consistently held that a tax assessment issued by the proper assessing authorities is prima facie correct and that the burden of evidence is upon the taxpayer to prove otherwise. The Taxpayer has not met this burden.
Therefore, based on the foregoing, I find no basis for correction of the assessment which is due and payable. A revised Notice of Assessment with accrued interest will be mailed to you as soon as practicable and should be paid within 30 days of receipt to avoid the accrual of additional interest and collections activities.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6121H
Rulings of the Tax Commissioner