Tax Type
General Provisions
Retail Sales and Use Tax
Description
Interest on audit assessments mandatory
Topic
Collection of Delinquent Tax
Penalties and Interest
Date Issued
05-24-1995
May 24, 1995
Re: §58.1-1821 Application: Sales & Use Tax
Dear*************
This will reply to your letter of January 17, 1995 regarding the department's audit assessment for *********************(the "Taxpayer").
FACTS
The Taxpayer is a mechanical contractor performing jobs in both Virginia and North Carolina. The audit disclosed that taxes were remitted on an inconsistent basis. In some instances, zero returns were filed while invoice amounts which should have been reported were delayed several months before tax was remitted on a monthly return. Additionally, the taxpayer's records reflected many months in which no returns were filed. An analysis of use tax returns was completed comparing the liability properly due and the liability reported. Interest was then assessed based on the original invoice dates.
The audit also disclosed numerous errors on use tax returns which resulted in overpayments. Credits for these overpayments have been allowed in the audit along with the corresponding allowable interest.
The Taxpayer protests the interest charged stating that the percentage of tax that it represents is extremely high for an audit of less than two years.
DETERMINATION
Code of Virginia § 58.1-1812 mandates the application of interest to any assessment of tax by providing that:
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"If the Tax Commissioner ascertains that any person has failed to make a proper return or pay in full any proper tax he shall assess the taxes prescribed by law, adding... the penalty... for the failure to file a return... and... for the failure to pay the taxes and penalty or penalties within the time prescribed by law. If no penalty is prescribed, he shall assess a penalty of 5 percent of the tax due.... In addition thereto, interest on the outstanding tax and penalty shall be charged at the rate established under 58.1 - 15 for the period between the due date and the full payment." (Emphasis added).
While I am sympathetic to the Taxpayer's situation, it must be pointed out that interest is not assessed as a penalty for noncompliance with the tax laws. Rather, it simply represents a fee for the use of money over a period of time.
As noted above, the application of interest to tax underpayments is mandatory under state law. Additionally, the department is subjected to the same interest rules when taxpayers overpay the tax on their returns (the department pays interest for the use of the taxpayer's funds, just as the taxpayer must pay interest in the case of an underpayment) .
The interest in this case was correctly calculated under the law, with the department's auditor giving credit to the Taxpayer for interest on overpayments occurring during the audit period. Thus, the balance of the department's assessment remains due. Please return your company's check to the department's Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23282-1880. If you have any further questions regarding the results of the audit, please contact**************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/9409Q
Rulings of the Tax Commissioner