Tax Type
Retail Sales and Use Tax
Description
Administrative remedies; Purchase markup method; Failure to provide more complete documentation
Topic
Taxpayers' Remedies
Date Issued
03-28-1997
March 28, 1997
Re: § 58.1-1821 Reconsideration: Retail Sales and Use Tax
Dear****************
This will reply to your letter in which you request a hearing and reconsideration of the department's August 6, 1996 determination for the audit appeal of your clients, ************** for the period July 1992 through June 1995.
FACTS
The Taxpayer was assessed tax on under reported sales of alcoholic beverages. As complete records were not available, the auditor used a purchase markup method to determine the Taxpayer's tax liability based on actual product and price information provided by the Taxpayer. The Taxpayer continues to protest the assessment and requests a hearing with the Tax Commissioner to discuss the contested issue.
DETERMINATION
The courts have consistently held that a tax assessment issued by the proper authorities is prima facie correct and that the burden is on the taxpayer to prove otherwise. While you maintain, in prior correspondence, that the sales reported to the department are consistent with all records maintained by the Taxpayer, I cannot agree.
One of the purposes of an audit is to determine whether the dealer has properly collected and remitted all of the sales tax due on taxable sales. In this case, the Taxpayer could not provide the required documentation to substantiate sales reported to the department. For example, the Taxpayer provided only monthly sales totals when the auditor needed documentation of daily sales transactions. In addition, the Taxpayer did not maintain cash register tapes prior to December 1994. Also, the cash register tapes that were provided during the audit were inadequate as they did not indicate an accumulating gross sales count showing a beginning and ending cash register reading on a daily basis. The Taxpayer also failed to keep complete and accurate records of the amounts of mixed beverages and other alcoholic beverages sold at regular and reduced prices.
In the absence of such records, the Taxpayer's purchases of alcoholic beverages provides the only basis as to the level of sales. When the Taxpayer's purchases are used in conjunction with known serving sizes and prices, sales can be recreated. In this case, when resultant sales are divergent from the Taxpayer's reporting, reasonable doubt occurs as to the validity of the taxpayer's records. This is supported by the fact that the Taxpayer failed to maintain complete and adequate records to substantiate all of its alcoholic beverage sales during the audit period.
Code of Virginia § 58.1-1821 provides that any person assessed with any tax administered by the department may apply for relief to the Tax Commissioner within ninety days of an assessment. The statute further states that the application shall be in the form prescribed by the department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention. The Tax Commissioner may require additional information, testimony or documentary evidence as deemed necessary to a fair determination of the application.
The Taxpayer has been given the opportunity to provide additional information to substantiate its position. The Taxpayer's last meeting with members of the department's audit staff was on October 4,1996; however, the Taxpayer provided no new facts pertaining to the records that the auditor utilized in the audit that would refute the validity of the purchase markup method used to determine the tax liability. To date, no new documentation has been furnished to support your claim that the assessment of sales tax in this case is overstated.
I have completely reviewed my prior determination t o the Taxpayer and all of the information previously submitted to the department. As a result of this review, and the fact that the Taxpayer has not provided any additional facts or documentation, I continue to find no basis for revising the audit. Based on the foregoing, and because this is purely a factual matter, I believe a meeting with the Taxpayer is not necessary at this time.
Nevertheless, if the Taxpayer can provide sufficient documentation which supports its claim that the assessment is overstated, the department will review this information and if appropriate revise the assessment. The information should be made available to the department within 60 days of the date of this letter. The information should be mailed to the department's Office of Tax Policy, P.O. Box 1800, Richmond Virginia 23218-1880. If the documentation is not available within the specified period, the assessment will be considered correct as issued.
If you have any questions regarding this letter, please contact ********* at ***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11833T
Rulings of the Tax Commissioner