Tax Type
Retail Sales and Use Tax
Description
Statute of limitations; Deficiency assessments; withholding tax
Topic
Collection of Delinquent Tax
Date Issued
05-27-1997
May 27,1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*************
This is in reply to your letter in which you seek correction of sales and use tax assessed to your client, ***********(the "Taxpayer"), for the period August 1991 through July 1996.
FACTS
The Taxpayer specializes in obtaining individuals for speaking engagements and is paid a fee by its clients for such services. As a result of the department's audit, the Taxpayer was assessed tax on purchases of tangible personal property used in its business operations. The auditor extended the audit period beyond the three year limitations period due to the Taxpayer's failure to accrue and remit use tax on untaxed purchases. The Taxpayer disagrees with the assessment of tax beyond three years and asserts that the auditor did not establish reasonable cause to assess such tax pursuant to Code of Virginia § 58.1-634. Additionally, the Taxpayer questions the basis for extrapolation of the audit liability.
DETERMINATION
Statute of Limitations
Code of Virginia § 58.1-634 provides the limitations period for the assessment of sales and use taxes. Generally, tax must be assessed within three years from the date on which such taxes became due and payable. The statute also authorizes the Tax Commissioner to extend the period to assess tax beyond three years if there is reasonable cause to believe that a taxpayer was required by law to file a return and failed to do so.
The Taxpayer is engaged as a service provider in Virginia and does not make sales of tangible personal property. The Taxpayer is considered the consumer of all tangible personal property purchased for use in the provision of services to its clients. See Title 23 of the Virginia Administrative Code (VAC) 10-210-4040(E), copy enclosed. As a consumer of property, the Taxpayer must pay the tax on its purchases used in the provision of services. Under VAC 10-210-4040, the Taxpayer must remit the use tax to the department if the vendor does not collect the tax at the time of purchase. See VAC 10-210-6030, copy enclosed, for use tax filing requirements.
The Taxpayer's failure to file use tax returns in compliance with the cited regulations provided sufficient evidence to extend the audit period beyond the established three year limitations period and apply the tax. The assessment of use tax, in this instance, was proper. This determination is consistent with prior department rulings that upheld the assessment of tax beyond the limitations period for failure to properly file returns. I have enclosed a sampling of rulings for your information.
Audit Extrapolation
According to the auditor, the Taxpayer's representative agreed to use withholding tax figures as a basis for extrapolation of the purchases liability as these figures were representative of business activity during the audit period. Under Code of Virginia § 58.1-205, copy enclosed, any assessment of a tax by the department shall be deemed prima facie correct and the burden of proving otherwise is upon the Taxpayer. The Taxpayer should contact the auditor within 30 days from the date of this letter if there is factual information available which would provide a more accurate basis for extrapolation of the audit liability. If the Taxpayer is unable to provide new information, the assessment will be upheld and payment will be due.
I hope the foregoing has responded to your inquiry. If you have questions regarding the policy set forth in this letter, you may contact******** at ********* . Questions concerning the audit procedures should be directed to******* at **************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12012J
Rulings of the Tax Commissioner