Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Sampling techniques
Topic
Collection of Delinquent Tax
Date Issued
06-23-1995
June 23, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear *****************.
This will reply to your letter of September 19, 1994 in which you request correction of the sales and use tax audit assessment of*************(the Taxpayer") for the period of December, 1988 through February, 1992.
FACTS
The Taxpayer is in the business of embroidering and retail sales. The tax liabilities on sales and expense purchases were extrapolated based on a three month and twenty-one month sample respectively. The majority of the Taxpayer's records prior to November, 1990 were not available due to a fire experienced by the Taxpayer. The Taxpayer takes issue with the validity of the audit sample methods used by the department to project the tax liability for period where records were not available. The Taxpayer also claims items for resale were included in the Purchases Exception List of the audit workpapers
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sectors in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client. 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 consistently held that a tax assessment issued by the proper authorities is prima facie correct and valid and that the burden of proof is upon the taxpayer to prove otherwise. As such, the taxpayer must demonstrate that the sample used is not representative of the audit period or that it is flawed in some other manner to invalidate the sample. In the case at hand, the Taxpayer has not presented evidence to negate the validity of the sample used. In light of the fact the records available to the auditor were limited due to the fire, l find the auditor made a reasonable attempt to choose sample periods that were representative of both the sales and purchases practices of the Taxpayer. I realize that your records were destroyed by fire, but if you can provide me with any other information to show that compliance was significantly higher during the period prior to the fire, l will agree to revisit this issue.
It is also noted in your letter that the auditor picked up certain items, i.e. cloth backing used in embroidery and artwork, which is transferred with the garments to the customer. Based on a review of the audit working papers by a member of my staff, it does not appear any such items are included in the Purchases Exceptions List of the audit. I am requesting that the auditor review the Purchases Exception List to ensure that no resale items are included in the audit deficiency and the department will adjust the deficiency accordingly.
While I sympathize with your situation, I can see no basis to adjust the audit. If you should have any further questions, please feel free to contact**********Office of Tax Policy, at****************.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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OTP/8504K
Rulings of the Tax Commissioner