Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments; Estimated assessments
Topic
Amnesty
Collection of Delinquent Tax
Date Issued
05-31-1996
May 31, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This is in response to your letter of November 8, 1995, seeking correction of the sales and use tax audit assessment issued to ******the Taxpayer).
FACTS
The Taxpayer is a contractor and retailer of custom cabinets, counter tops, wall paneling and other woodwork. It sells such items either on an installed or uninstalled basis. An audit for the period February 1992 through December 1994 resulted in an assessment of tax for untaxed retail sales and untaxed purchases of items used or consumed in installing items which become real property upon installation.
The Taxpayer claims that it received misinformation or insufficient information in 1987 from a collection representative of the department on how to apply the tax. Further, the Taxpayer maintains that the extrapolation of the sample deficiency overstates its tax liability for the years 1992 and 1994 and requests a recomputation of the liability based on its tax returns. The Taxpayer indicates that it is under severe financial strain.
DETERMINATION
As the Taxpayer sells cabinets with or without installation, it is subject to the special classification rules set out in subsection G of Virginia Regulation (VR) 630-10-27, copy enclosed. Since the Taxpayer does not maintain an inventory of cabinets or materials for such, it is deemed under the above regulation to be a contractor of cabinets which it sells and installs. In such instances, the Taxpayer is liable for the tax on the cost price of cabinetry materials. When the Taxpayer sells cabinets without installation, it is a retailer of such items and must charge and collect the sales tax based on the gross sales price of such items.
Although the Taxpayer sells and installs other types of woodwork (e.g., wall paneling, moldings, counter tops, etc.) which are not subject to the classification rules set out in subsection G of the above cited regulation, it is also a using and consuming contractor of those items which become a part of the realty when installed. In such instances, the tax applies to the cost price of the materials. When such woodwork is sold on an uninstalled basis, the Taxpayer is a retailer of such items and must charge and collect the sales tax on the total charge. See subsections A and B of the above contractor regulation.
Claim of Misinformation: Code of Virginia § 58.1-205 sets out that any assessment of a tax by the Department of Taxation is deemed prima facie correct. Although you maintain that you received misinformation or insufficient advice from a representative of the department, it is my understanding that the purpose of the representative's visits to the Taxpayer was only to obtain sales and use tax returns that had not been filed. Although she may have assisted you in the preparation of those tax returns and reviewed some sales tax records with you, you have not provided any evidence that she misinformed you.
The inconsistent pattern of tax reporting shown during the period of audit demonstrates that you did not comply in any uniform manner. For instance, the Taxpayer did not report any use tax during the entire period of audit for items which were used or consumed in real property installations. Nor has the Taxpayer demonstrated that it was consistent in reporting retail sales made during the audit period. Rather, only a small portion of the Taxpayer's sales were reported.
Furthermore, the Taxpayer's Amnesty problems and liabilities incurred for late filing have no direct bearing on this matter. In addition, the auditor has already given credits in the audit for tax paid on other assessments related to the audit period. Based on all of the foregoing and absent proof that the department misinformed the Taxpayer, I find no basis to revise the assessment for the reasons presented above.
Assessment Based on Estimate: VR 630-10-30, copy enclosed, sets out the requirements for dealer's records and states, in part, the following:
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- Every person who is liable for collection of sales tax and/or remittance of use tax is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.
In this case, the Taxpayer has not shown that it complied with the above record keeping requirements. In reviewing the available documentation, the auditor discovered that the Taxpayer's bank deposits far exceeded the gross sales reported to the department. The Taxpayer, however, has been unable to substantiate this difference to the satisfaction of the department since only a small portion of the Taxpayer's sales invoices and records have been provided.
In such instances, the department is authorized under Code of Virginia § 58.1--618 to estimate the tax liability and assess the tax accordingly. Unless the Taxpayer provides all necessary records (i.e., all retail and contract sales records for 1992, 1993 and 1994; all bank deposit records for 1992 and 1994; and Schedule C's for 1992 and 1994) to allow the auditor to complete her audit, we cannot entertain a revision of the audit findings. If the Taxpayer will furnish such information to the department's****District Office within the next 60 days the auditor will review it and make the proper adjustments to the audit, if needed.
Payment of Tax Liability: If the Taxpayer is unable to pay off the entire assessment in a lump-sum payment and has no lines of credit available to finance the outstanding liabilities, it may contact the department's Collection Section, P. O. Box 1880, Richmond, Virginia 23218-1880, to request a scheduled plan of payment.
As presently billed, the assessment of tax in this case is valid. In the event that the Taxpayer wishes to provide the requested documentation referred to above, the Taxpayer must furnish such documentation to the department's ***** District Office within the next 60 days. If the requested information is not furnished the department within the time allotted above, this determination will be deemed final and an updated assessment will be issued to the Taxpayer for the outstanding balance.
If you have any questions about this response, please contact *****of my Office of Tax Policy ******** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10730R
Rulings of the Tax Commissioner