Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Sample not representative of normal business activity
Topic
Collection of Delinquent Tax
Date Issued
04-16-1997
April 16, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This will reply to your letter in which you seek correction of an assessment issued to your client, ****** (the "Taxpayer"), for the period January 1992 through December 1994.
FACTS
The Taxpayer is a caterer that was audited and assessed sales tax on untaxed sales for which it did not have valid exemption certificates on file at the time of the audit. The Taxpayer maintains that the audit sample contains three exceptions which are not representative of the Taxpayer's normal business activity and seeks the removal of these items from the sample.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in the public and private sectors. The department uses sampling in sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. When sampling techniques are properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
A review of the audit workpapers reveals that the three exceptions comprise over one-half the measure found in the sample, yet there was a total of twenty-four exceptions found in the sample. For this reason, I agree that the sample may not be representative of the Taxpayer's normal business activity. If the Taxpayer can provide documentation showing that the three exceptions were the only sales made to this particular customer, they will be removed from the audit sample and taxed separately.
I will have a staff member of the Managed Audit Program contact the Taxpayer to arrange a mutually agreeable time to review the Taxpayer's sales records. The audit will be adjusted after our review is completed. A copy of Title 23 VAC 10-210-280 is enclosed to assist the Taxpayer with properly accepting exemption certificates from its customers. I ask that the Taxpayer exercise caution when making exempt sales in the future. If you have any questions concerning this matter, you may contact ***** in the Office of Tax Policy at ************* .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11356S
Rulings of the Tax Commissioner