Tax Type
Retail Sales and Use Tax
Description
Dealer required to keep and preserve adequate and complete records
Topic
Returns/Payments/Records
Date Issued
06-28-1996
June 28, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will respond to your correspondence and phone conversations with members of my staff concerning audit assessments issued to**************************("Taxpayer A") and**************( Taxpayer B ), for the period August 1989 through June 1992. The department's Audit Review Unit previously upheld both assessments; however, you continue to maintain that the assessments are erroneous. Both cases will be treated as applications for correction of assessment under Code of Virginia § 58.1-1821.
FACTS
Taxpayer A operates 4 pharmacies in the state which were assessed the tax based on differences between amounts in its general ledger sales tax account and amounts reported on its sales tax returns. Taxpayer A maintains that the differences can be attributed to its use of a manual accounting system for sales tax reporting purposes which is not reconciled to general ledger accounts. In addition, Taxpayer A states that nontaxable business receipts were charged to its general ledger revenue account and these amounts account for the difference between the revenue account and gross sales reported on its sales tax returns.
Taxpayer A has been unable to provide documentation or an audit trail to reconcile its manual system of sales tax accounting with its general ledger account balances. Representatives of the department have made several visits to examine the records of Taxpayer A, but no additional documentation has been provided that would warrant adjustments to the audit.
Taxpayer B operated a retail sporting goods store which has gone out of business. The auditor reconciled sales reported on Taxpayer B's sales and use tax returns with amounts reported on its federal income tax returns. A discrepancy in the amount of sales reported to the department was discovered and tax was assessed on the difference. Taxpayer B maintains that items such as sales made outside of Virginia, fire insurance reimbursements, and manufacturers' rebates were included in gross sales on its federal income tax returns and account for the discrepancies. These amounts, therefore, should be removed from the audit calculation. Taxpayer B has not provided documentation to support these claims.
DETERMINATION
Virginia Regulation (VR) 630-10-30 (copy enclosed) provides that "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." On several occasions, the department has attempted to reconcile taxable sales with documentation provided by Taxpayer A and Taxpayer B. These visits have not produced additional information which would result in adjustments to the audit assessments.
While you have provided totals for various nontaxable items that you maintain are included in the assessments, documentation has not been provided to support the amounts provided in your correspondence. For example, evidence of the fire insurance reimbursements has not been provided. Sales invoices, tax returns, or temporary sales tax registrations to support sales made outside of Virginia have not been provided; nor has documentation of manufacturers' rebates been provided. Without such documentation, the Taxpayer has not met its burden of proving that the assessments are erroneous.
The assessments issued to Taxpayer A were based on an analysis of the sales tax account balances in Taxpayer A's general ledger and sales tax reported on returns to the department. An assessment was made based on the differences between amounts reported to the department and amounts recorded in the general ledger. The assessments were not based on a comparison of gross sales from sales tax returns with revenue amounts recorded in your general ledger.
An examination of the audit workpapers reveals that the audit of Taxpayer A was revised based on a sample which was extrapolated over the audit period. The original audit results were computed based on a detailed analysis of Taxpayer A's sales tax payable account as indicated above. A review of this schedule reveals that a detailed audit using the scheduled amounts would have resulted in a lower tax liability. Since the figures used for the audit sample period agree with the amounts from this schedule, I will agree to adjust the assessment to remove tax of ***** penalty of **** and interest of *** to reflect the sales portion of the audit liability on a detail basis.
Based on the above, the assessment issued to Taxpayer A will be adjusted to agree with the detailed sales tax analysis. The assessment issued to Taxpayer B is correct unless you can provide the documentation discussed above within sixty days. Due to the length of time taken to respond to your appeal, I will agree to waive any additional interest if payments of ****and *** for the assessments issued to Taxpayer A and Taxpayer B, respectively, are received within sixty days. You may send your payments to *****in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. If you have any questions concerning this letter or have additional documentation, please contact ****at****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8755S
Rulings of the Tax Commissioner