Tax Type
Retail Sales and Use Tax
Description
Assessment and collection of tax; Assessments of omitted taxes
Topic
Collection of Delinquent Tax
Date Issued
04-26-1996
April 26, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**********
This will respond to your letter of October 4, 1995, seeking correction of the sales and use tax assessment issued to *****(the Taxpayer).
FACTS
The Taxpayer is an industrial manufacturer. An audit for the period April 1992 through January 1995 resulted in an assessment of tax on certain expensed and fixed asset purchases. For the fixed asset portion, the auditor assessed tax on two untaxed fixed assets which were purchased in April 1992. Since the Taxpayer's prior audit covers the period August 1989 through May 1992, the Taxpayer maintains that the department is now prohibited from imposing a tax on the fixed asset purchases.
DETERMINATION
At issue is the assessment of "omitted taxes" which the Virginia Supreme Court in the case of American Tobacco Co. v. City of Richmond. 125 Va. 29 (1919) defined as "taxes upon property which either because it has been concealed, overlooked or for some other insufficient reason, has escaped taxation." The assessment of omitted taxes by the Department of Taxation is mandated by Code of Virginia § 58.1-1812 which specifically states that:
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- If the Tax Commissioner ascertains that any person has failed . . . to pay in full any proper tax he shall assess the taxes prescribed by law, adding to the taxes so assessed the penalty prescribed by law .... In addition, thereto, interest on the outstanding tax and penalty shall be charged at the rate established under § 58.1-15 for the period between the due date and the date of full payment."
As such, the department is not prohibited by the statute from making an assessment of omitted taxes on purchases or sales missed in a prior audit. The assessment of omitted taxes must be made within the three year statute of limitations for the assessment of taxes or prior to the expiration of the extended date agreed upon by the department and the taxpayer for the assessment of these taxes. Also, there must be no likelihood that a reassessment of tax has occurred.
For untaxed purchases made in April 1992, the tax was due on or before May 20, 1992. The statute of limitations for assessing a tax is either 3 or 6 years from the tax due date, depending on whether a return is filed or not. When Form DT-36 (Waiver of Time Limitation on Assessment of Taxes) was signed on May 16, 1995, the 3 year statute of limitations was still open. By consenting to such waiver, the Taxpayer and the department mutually agreed to extend the statute of limitations for making the assessment until July 31, 1995. The tax in question was assessed on July 31, 1995. Accordingly, the date of assessment is valid for the entire audit period, including April 1992.
Concerning whether a reassessment has occurred, I would note that a detailed audit of fixed assets does not normally involve sample testing as commonly used by the department when auditing expensed purchases. Had these contested assets been expensed purchases, and had an error factor been applied to the gross purchases for the month in which these purchases were made, then I would have regarded the contested tax as an erroneous reassessment of tax. As fixed assets were examined in detail in the prior audit and we know that these two contested assets were not included in the prior audit, there is no likelihood that a reassessment of tax has occurred.
Based on all of the foregoing, the tax assessed on the fixed assets at issue is valid. Based on the circumstances of this case, and under the authority of Code of Virginia § 58.1-105, I will agree to waive the audit penalty of *** provided the Taxpayer pays the tax and interest of within the next 30 days. Please send payment to the attention of**** at the department's Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. Upon receipt of such payment within the time allotted, the penalty will be waived.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10388R
Rulings of the Tax Commissioner