Tax Type
Retail Sales and Use Tax
Description
Notice of assessment; Estimated assessments
Topic
Collection of Delinquent Tax
Date Issued
01-27-1997
January 27, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear********************
In your letter, you protest the sales and use tax assessment issued to
(the Taxpayer) as a result of an audit. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a sole proprietorship engaged in the sale of guns and jewelry. An audit for the period November 1992 through October 1995 resulted in the assessment of tax on untaxed purchases and sales.
The Taxpayer maintains that it did not receive a notice of assessment and objects to the interest assessed. The Taxpayer further maintains that it followed the instructions of a bookkeeper as to what sales and use tax was due and paid this amount.
DETERMINATION
Notice of Assessment
When an assessment is made, a printed bill is automatically generated and sent to the mailing address listed with the taxpayer's account. In the Taxpayer's case, a bill was issued to the Taxpayer on December 20, 1995 for the liabilities found in the audit and mailed directly to the address shown above. Although you claim that the bill was not received, I would note an audit report was mailed to the Taxpayer on January 2, 1996, and serves as adequate notice of assessment since the audit report lists the liabilities owed by the Taxpayer.
Interest
The application of interest to any tax deficiency is mandatory under the law and accrues at the "underpayment rate" established pursuant to § 6621 of the Internal Revenue Code plus two percent. While I am sympathetic to the Taxpayer's situation, I find that interest was correctly assessed in this case.
Dealer's Records
Virginia Regulation 630-10-30 requires that "[e]very person who is liable for collection of sales tax and/or remittance of use tax is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability. Such records must include...[a] daily record of all cash and credit sales...."
It is my understanding that the Taxpayer only kept cash register tape totals and reported its sales to the bookkeeper based on these totals. In doing so, a complete audit trail has not been maintained. In addition, the files maintained by the Taxpayer on its gun sales do not indicate the selling price of each gun sold. Nor was it possible, due to a lack of complete records, to verify the total amount of purchases and sales of jewelry made by the Taxpayer during the period of audit. Furthermore, the auditor informs me that the amount deposited with banks by the Taxpayer was considerably more than the sales reported to the department. For this reason, the auditor held the Taxpayer liable for the difference between reported sales and the amount deposited in various bank accounts.
Based on the foregoing, it is clear that the Taxpayer failed to keep adequate and complete records in order for the department to substantiate the Taxpayer's sales and use tax liability for all sales and purchases made from its store or at flea markets. When a retailer does not maintain complete records, and its bank deposits are shown to be much greater than the amount of sales reported, the department must assume, in the absence of convincing evidence to the contrary, that the taxpayer has under-reported its taxable sales and Purchases to the department.
Under the authority of Code of Virginia § 58.1-618, the department is allowed to make an estimate of the sales or use tax liability based on the best available information. Accordingly, the assessment issued by the department based on the available information is deemed accurate.
Based on all of the foregoing, I believe that the auditor applied sound audit practices to arrive at the amount of tax deficiency owed by the Taxpayer. Accordingly, I find no basis to revise the assessment based on the limited records submitted.
Under separate cover, the Taxpayer will receive an updated bill for the outstanding balance of **********. The payment along with a copy of the bill should be sent to the address shown on the bill, or to the attention of******* at the Department of Taxation, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within the next 60 days.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11215R
Rulings of the Tax Commissioner