Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments; Sampling method
Topic
Collection of Delinquent Tax
Date Issued
09-09-1997
September 9, 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 April 1994 through February 1996.
FACTS
The Taxpayer provides computer technology and services. The Taxpayer disputes the sampling method used to determine tax liability and believes that the methodology employed by the auditor was for purposes of reducing costs by the department. The Taxpayer contends that the sample method used overstates tax liability and maintains that a detail audit would more accurately reflect the tax liability due.
DETERMINATION
Sampling is, an audit technique of significant value that is widely used in both the public and private sectors for all types of audits where a detailed audit would not prove beneficial either to the auditor or the client. When sampling techniques are applied, the final result should be within a narrow percentage range of the actual amount that would be determined by al detailed audit.
In this case, the auditor reviewed sales invoices for October 1994 and September 1995 as the sample period. The auditor determined an error factor for the representative sample period selected. The error factor was extrapolated over gross sales for the audit period.
Despite the Taxpayer's contentions, I find no basis to invalidate the sample calculations. Before requiring that a detailed audit be conducted or a sample period be adjusted or extended, the Taxpayer must demonstrate that the sample is not representative of the audit period or that it is flawed in a manner which would invalidate the sample. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and that the burden is upon the taxpayer to prove otherwise. In this case, the Taxpayer has not yet met this burden.
Further, while you indicate that sampling is appropriate only when documentation is incomplete or unavailable, I cannot agree. Sampling is also used to determine tax liability when the volume of transactions is great. In this case, the Taxpayer's large volume of sales made during the audit period make it impractical to perform a detailed audit. Using statistical sampling when there is a large volume of transactions reduces compliance costs for both the department and taxpayers without impacting on accuracy.
If you have specific evidence that the sample period for this audit inaccurately reflects tax, you should provide that information within the next 60 days. If the documentation is not received within the specified time period, the assessment will be considered correct as assessed.
If you should have any questions regarding this determination, you may contact**** in the Office of Tax Policy.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12745T
Rulings of the Tax Commissioner