Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Estimate of restaurant's alcoholic beverage sales
Topic
Collection of Delinquent Tax
Date Issued
08-06-1996
August 6, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter in which you seek correction of a sales and use tax assessment to****** and ***** (the Taxpayer) for the period July 1992 through June 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer, a restaurant/bar, has two locations within the Commonwealth. As a result of the department's separate audits, assessments were made for unreported sales of alcoholic beverages. The Taxpayer is taking exception to the method used by the auditor in calculating unreported sales and maintains that the auditors calculations overstate the Taxpayer's actual gross sales.
DETERMINATION
Sales Measure: Code of Virginia § 58.1-625 provides that "all sums collected by a dealer...shall be deemed to be held in trust for the Commonwealth." (Emphasis added). Virginia Regulation (VR) 630-10-30 provides that every dealer liable for the collection and remittance of sales and use tax is required to keep and preserve for three years adequate and complete records necessary to determine sales and use tax liability. When records are not available for inspection and examination by the department in the course of an audit, the auditor must resort to other measures to determine tax liability.
It is my understanding that the auditor performed a thorough review of the Taxpayer's records and found them to be inadequate; therefore, the auditor used a purchase mark-up method in both audits on alcoholic beverages to determine the tax liability. To derive the cost--of-goods sold percentage, the auditor analyzed both unit cost and sales prices, taking into account circumstances such as theft and spillage. The auditor also used information the Taxpayer furnished to the Department of Alcoholic Beverage Control on its sales.
As complete records were not available for beverage sales, the department worked with actual product and price information including selling prices provided by the Taxpayer to develop reasonable estimates. Based on this work, I believe that the liability resulting from this audit has been accurately and fairly calculated.
Penalty: The facts presented show that the penalty assessed is attributable to tax collected from customers but not remitted to the department. VR 630-10-80 (A), which reflects well established department policy, provides that penalty will not be waived in situations where the taxpayer has collected sales tax but failed to remit it to the department.
Lastly, in information provided by the auditor, it was reported that the Taxpayer lists in its menu prices the cost of the alcoholic beverage and separately states the sales tax. The sales tax, however, is not separately stated on the register tape. Further, the Taxpayer did not obtain permission from the Tax Commissioner in accordance with Code of Virginia § 58.1 -614(D) to account for the tax in this manner.
Code of Virginia § 58.1-614 (D) provides that when a dealer is able to demonstrate to the satisfaction of the Tax Commissioner that it is impractical to collect the tax in accordance with the bracket system it may be authorized to remit an amount based on a percentage of gross receipts which takes into account the inclusion of the sales tax.
Based on the information provided and under the provisions set forth in Code of Virginia § 58.1-614 (D), permission is hereby granted for the Taxpayer to include the tax in its menu item prices prospectively from the date of the Taxpayer's letter, October 20, 1995. This permission applies only to the retail sales and use tax. The Taxpayer will have to seek separate permission from its locality to include the local meal and beverage tax in its menu item prices.
I have enclosed P.D. 95-11 (01/19/95) for further instructions regarding price listings and the method to determine the amount of sales tax which must be remitted to the department. If you have any questions regarding this ruling, please contact********** of the department's Office of Tax Policy at*****************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10420T
Rulings of the Tax Commissioner