Tax Type
BPOL Tax
Description
Definite place of business.
Topic
Local Power to Tax
Date Issued
10-24-1997
October 28, 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 a sales and use tax assessment issued to ******* (the Taxpayer) for the period July 1994 through June 1997.
FACTS
The Taxpayer is a retailer and wholesaler of electrical supplies. The Taxpayer disputes the sampling method used to assess the tax. The Taxpayer disagrees with the initial one month sample selected by the auditor because it contained two high volume sales. The Taxpayer believes that these sales are not representative of the audit period. As a result, the auditor expanded the sales sample and reviewed an additional two months. The Taxpayer identified another high volume transaction in the expanded sample which it feels is not representative of the audit period. As such, the Taxpayer continues to disagree with the audit sample.
DETERMINATION
Sampling is an audit technique of significant value that is widely used in both the public and private sector in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client. 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.
In this case, the auditor used a one month sample to identify sales made during the audit period. The auditor reviewed an additional two months chosen by the Taxpayer. In both instances, the auditor found recurring errors in which the Taxpayer failed to collect the tax on sales that were clearly taxable. The fact that the Taxpayer can attribute errors to three specific accounts does not constitute a nonrepresentative sample because recurring errors were also found in other accounts, both in the original sample and in the expanded sample. It appears the large volume sales may occur infrequently but on a recurring basis. To remove the items in question from the sample base would, therefore, skew the sample and nullify the validity of the sample.
Despite the Taxpayer's contentions, I can find no basis for the removal of the protested items from the audit sample. The courts have held that a tax assessment is prima facie correct and the burden is upon the taxpayer to prove that the assessment is incorrect. Based on the information before me, the Taxpayer has not met this burden. For an item to be removed from the audit sample, the Taxpayer must show that the transaction was isolated in nature and not a normal part of the Taxpayer's operation. The contested transactions in this case appear to be an integral part of the Taxpayer's business activity.
The Taxpayer will receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid accrual of additional interest. If you have any questions regarding this letter, please contact ******* of the department's Office of Tax Policy at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12849T
Rulings of the Tax Commissioner