Tax Type
Retail Sales and Use Tax
Description
Deficiency assessment; Three-month sample
Topic
Collection of Delinquent Tax
Date Issued
09-16-1996
September 16, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******
This is in reply to your letter in which you seek correction of sales and use tax assessed to *******(the "Taxpayer"), as a result of an audit for the period August 1991 through June 1994. I apologize for the delay in responding to your letter.
FACTS
The taxpayer sells heating and plumbing parts to wholesale firms. The Taxpayer disputes the sampling method used to assess the tax. The Taxpayer disagrees with the initial three month sample selected by the auditor because the sample contained an unusually large taxable sale in which another state's tax was collected in error. As a result, an additional three months were reviewed which significantly reduced the error factor for the audit. The Taxpayer disagrees with the assessed tax and believes that an examination of additional months would further reduce the error factor which would more accurately reflect the tax liability due. The Taxpayer submits a payment of an estimated amount due.
DETERMINATION
Despite the Taxpayer's contentions, I find no basis to invalidate the sample period used to calculate the error factor and extrapolated over the audit period. The courts have held that a tax assessment is prima facie correct and the burden is upon the taxpayer to prove that the assessment is incorrect. The Taxpayer has not met this burden.
Sampling is an audit technique of significant value that is widely used in both the public and private sector 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 audit techniques in this case were properly applied. The purpose of the audit sample is to determine an error factor for the representative sample period selected, and not to detail all transactions within the selected sample. Once the error factor is calculated, the factor is extrapolated over the entire audit period. In this case, the auditor agreed that the initial sample period may not have been representative and reviewed an additional three months. The error factor was then correctly used to extrapolate over gross sales for the audit period in question.
The Taxpayer indicated that it would examine all taxable sales in the audit over a certain dollar value to justify further reduction of the error factor. The department would be willing to accept the results of the Taxpayer's review for use in recomputing the audit liability. The review must be done in detail on all sales during the audit period. The Taxpayer should submit this information within 90 days from the date of this letter to *****Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. In the absence of this documentation, the assessment is upheld and the Taxpayer should pay the balance due shortly thereafter.
If you have further questions, you may contact the above named person at**********
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9461J
Rulings of the Tax Commissioner