Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Sampling period upheld
Topic
Collection of Delinquent Tax
Date Issued
11-27-1996
November 27, 1996
Re: §58.1-1821 Retail Sale & Use Tax
Dear***************
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to ********** (the Taxpayer) for the period May 1991 through November 1995. I apologize for the delay in responding to your correspondence.
FACTS
During the course of the department's sales and use tax audit, the auditor performed a one year sample using expensed purchases for 1994. The Taxpayer maintains that the extrapolation to cover 1995 expense purchases overstates its liability. The Taxpayer states that the use tax has been accrued and remitted to the department on all taxable purchases for the 1995 audit period. Accordingly, the Taxpayer requests that the audit be adjusted to remove the audit liability for the 1995 period.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sectors. The department uses sampling in all types of sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. 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.
In order to prove that the assessment is incorrect, 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. While the Taxpayer maintains that the use tax was accrued on all purchases for the 1995 audit period, a review of the sales and use tax returns reveals that the Taxpayer did not begin to accrue use tax on taxable purchases until May 1995. Because the Taxpayer accrued use tax for a portion of the year, the auditor attempted to detail purchases for the 1995 period. As complete records for 1995 were not available, the sample was extrapolated over the entire audit period.
The Taxpayer has not demonstrated that the sample is flawed or that the assessment is erroneous. Based on the information before me, there is currently no basis to adjust the assessment. Nevertheless, the Taxpayer will be given the opportunity to provide a copy of the general ledger or disbursement journal which provides a complete list of all purchases for the year 1995. If the information is furnished, the auditor will detail the purchases and adjust the assessment accordingly. This information should be sent to the auditor at the *********** District Office, ******Virginia ********within 60 days of the date of this letter. If the requested information is not received within the specified time period, the assessment will be correct as issued and the Taxpayer will receive an updated notice of assessment.
If you have any questions regarding this letter, please contact*********at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner