Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments; Inaccurate sample
Topic
Collection of Delinquent Tax
Date Issued
01-04-1995
January 4, 1995
Re: §58.1-1821 Application: Sales and Use Tax
Dear********************
This will reply to your letter of August 23, 1994 in which you request a reevaluation of the validity of the audit sample used to extrapolate recurring capital purchases in the audit of *********(the"Taxpayer") for the period of March, 1985 through February, 1991.
FACTS
In conducting the audit of the Taxpayer, the auditor sampled expense purchases for the calendar year 1990, and extrapolated the findings of the sample over the entire audit period. The Taxpayer is questioning the validity of the sample based on the fact the capital expenditures for"tanks" during the sample period were extraordinarily high. In fact, capital expenditures for tanks during 1990, the sample period, were 416% higher than any other year of the audit period.
Based on the above, the Taxpayer contends the extrapolated measure for expense purchases is inflated and is seeking reconsideration of the sample period used in the audit.
DETERMINATION
Sampling is an audit technique of significant value that is 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. 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.
Although the sample is valid, based on the information you have provided, it is possible that a revision to the audit is appropriate. It is apparent that purchases of tanks during the sample period were unusually high compared to the other years in the audit period. While there is no question as to the taxable status of the tanks, I do find basis for removing the tanks from the sample and detailing the purchases of tanks for the entire audit period. A representative from the ********* District Office will contact the Taxpayer in order to make the necessary revisions.
If you should have any further questions, please feel free to contact the department.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8952K
Rulings of the Tax Commissioner