Tax Type
Retail Sales and Use Tax
Description
Dealer records; Documentation of tax collected
Topic
Returns/Payments/Records
Taxability of Persons and Transactions
Date Issued
04-23-1996
April 23, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letter of November 7, 1995 in which you, on behalf of your client, *****(the "Taxpayer"), seek correction of the sales and use tax audit assessment for the period of June 1992 through May 1995.
FACTS
The Taxpayer was audited and assessed tax and interest for numerous invoices on which Virginia sales tax should have been charged and was not. The Taxpayer was unable to directly tie the examined invoices into the tax returns and, therefore, was unable to determine whether the tax had been accrued on such invoices and paid. The Taxpayer believes that due to the nature and complexity of its computer system, tax may have been paid on the invoice; however, the Taxpayer is unable to verify this. In addition, the Taxpayer states that in one month of the sample period, sales were over-stated. The Taxpayer believes that sales may be over-stated in other periods as well, and the department should off-set the overpayment of sales tax against the audit liability.
DETERMINATION
Code of Virginia § 58.1-205.1 provides that in any proceeding relating to the interpretation or enforcement of the laws of the Commonwealth, any assessment issued by the department shall be prima facie correct and the burden is on the Taxpayer to prove otherwise. Recordkeeping requirements for registered sales and use tax dealers are set forth in Code of Virginia § 58.1-633 which states, in part:
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Every dealer required to make a return and pay or collect any tax under this chapter shall keep and preserve suitable records of the sales, leases, or purchases, as the case may be, taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner.
Furthermore, Virginia Regulation (VR) 630-10-24 addresses "Collection of Tax by Dealers" and provides that "identification of the tax by a separate writing or symbol is not required provided the amount of the tax is shown as a separate item on the record of the transaction." (Emphasis added). In the case at hand, the Taxpayer did not show the tax on the customer's invoice, nor does the Taxpayer have sufficient records to show the tax was accrued and paid by the Taxpayer. For this reason, there is no basis for adjusting the audit liability.
It is also noted in your letter that one month during the audit sample period the Taxpayer over-reported taxable sales. If the Taxpayer can produce documentation showing the amount of tax over-reported during the audit period, upon verification by an auditor from our**** District Office, I will agree to apply the overpayment of the tax to the audit liability.
Finally, the Taxpayer feels that based on all the variables surrounding the present audit, the percentage of error calculation used to project the audit liability is skewed against the Taxpayer. Sampling is an audit technique of significant value that is widely used in 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 detail audit. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and the burden of evidence is upon the taxpayer to prove otherwise.
Based on all of the above, the Taxpayer has not established that the percentage of error factor calculated as a result of the audit sample is not representative of the entire audit period. If the Taxpayer can provide documentation that there exists an overpayment of tax during the audit period, the department will credit such overpayment against the audit liability.
If you should have any questions concerning this determination, please contact **** Office of Tax Policy, at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10651K
Rulings of the Tax Commissioner