Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Sampling accepted over tax schedules
Topic
Collection of Delinquent Tax
Date Issued
04-22-1997
April 22, 1997
Re: § 58.1-1821 Application: Retail Sales and 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 February 1993 through December 1995.
FACTS
The Taxpayer was audited and assessed sales tax on exempt sales for which the Taxpayer did not have exemption certificates on file. The Taxpayer was also assessed for sales tax that was collected and not remitted to the department. Use tax was assessed on fixed assets placed in service during the audit period as shown on the Taxpayer's depreciation schedule. The Taxpayer was unable to provide documentation for the fixed asset purchases.
The Taxpayer maintains that some of the fixed assets listed in the audit were assets transferred between store locations and that the assets had little or no value. For this reason, use tax was erroneously assessed on these assets. The Taxpayer also seeks the removal of the sales exceptions from the audit because the sales were made to a foreign embassy, which is exempt from state and local sales taxes. Finally, the Taxpayer seeks the removal of the assessment for sales tax collected but not remitted to the department based on a schedule showing that sales tax was actually over reported to the department during the audit period.
DETERMINATION
Exempt Sales
Title 23 VAC 10-210-694 (copy enclosed) provides that sales or use tax is not applicable to sales to or purchases by certain foreign missions and diplomats. While the Taxpayer is correct that exemption certificates are not needed for transactions involving foreign diplomats or missions, this section does require that the record of the sale show the exemption card number of the purchaser designated to make official purchases on behalf of the foreign mission or embassy. If the Taxpayer can provide documentation showing the information required by Title 23 VAC 10-210-694, the sales will be removed from the audit.
Fixed Assets
The Taxpayer states that the fixed assets transferred between its locations had little or no value and therefore, no use tax should be due on them. The auditor indicates that the Taxpayer had no fixed asset records available to review. A depreciation schedule was used to list those fixed assets placed in service during the audit period. Code of Virginia § 58.1-205 (copy enclosed) provides that assessments issued by the department are considered prima facie correct. The burden of proving that an assessment is not valid is on the taxpayer. If the Taxpayer can provide documentation showing the value of the assets at the time they were placed in service or purchase invoices showing that sales tax was paid on the purchase of the assets, these items will be removed from the audit.
Tax Collected and Not Remitted
Using a three-month sample period, the department's auditor determined that the Taxpayer had collected sales tax that was not remitted to the department. An error factor was computed and used to extrapolate the sample results over the audit period. The Taxpayer has now submitted a schedule indicating a net overpayment of sales tax to the department during the audit period.
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. The Taxpayer has submitted a schedule showing a possible overpayment of sales tax based on taxable Virginia sales but I note that the auditor's assessment is based on discrepancies in the Taxpayer's sales tax account balances. Since the assessment was based on sales tax balances rather than taxable sales, the schedule submitted by the Taxpayer is not sufficient to justify an adjustment to the assessment. If the Taxpayer has additional information to submit to the department for review, it may do so.
The Taxpayer may send the documentation discussed above to ******* in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. I will allow the Taxpayer ninety days to submit the documentation. Any adjustments to the audit will be made based on our review and a revised assessment with accrued interest will be issued to the Taxpayer. If you have any questions concerning this matter, please contact**** at *********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11323S
Rulings of the Tax Commissioner