Tax Type
Retail Sales and Use Tax
Description
Audit procedures; Sample based on contested sale confirmed
Topic
Collection of Delinquent Tax
Date Issued
02-10-1997
February 10, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****************
In your letter of October 30, 1996, you seek correction of the retail sales and use tax audit assessment issued to ********* (the Taxpayer). Copies of all references are enclosed.
FACTS
The Taxpayer is a manufacturer of supplies. An audit for the period January 1993 through December 1995, resulted in an assessment of sales tax for tax collected but not remitted, and use tax on certain untaxed purchases.
The Taxpayer takes exception to the use tax assessed on charges for the rental of a semitrailer used for storage and maintains that such rental charges are not taxable since the Taxpayer did not purchase the trailer and has returned it to its owner. The Taxpayer also takes exception to the use tax assessed on tote bins and maintains that these bins were one-way deliverables (i.e., nonreturnable) and sold with the product. In addition, the Taxpayer takes exception to the sales tax assessed on one sale made to a regular customer. According to the Taxpayer, it normally charges the sales tax on all sales made to this customer, and its failure to charge sales tax in this instance is not a common error. The Taxpayer indicates that this customer has reported and paid the use tax owed on this sale to the department and therefore requests the removal of this sale from the audit.
DETERMINATION
Semitrailer rental
Code of Virginia § 58.1-603 imposes the sales tax not only upon the gross sales price of tangible personal property sold at retail, but also upon the gross proceeds derived from, or the charges made for, the lease or rental of tangible personal property. Virginia Regulation (VR) 630-10-57 interprets the statute and provides further details on the application of the tax to the lease or rental of tangible personal property.
Since the tangible personal property at issue is a semitrailer, it is important to note that a semitrailer which is drawn by or designed to be drawn by a motor vehicle is also defined as a "motor vehicle" for purposes of the Virginia motor vehicle sales and use tax. See VR 630-10--67(B). I would further note that VR 630-10-67(A) sets out the following:
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- Sales, leases, and rentals of motor vehicles are not subject to the retail sales and use tax provided they are subject to the Virginia motor vehicle sales and use tax administered by the Department of Motor Vehicles and further provided that such tax has been paid. Any type of motor vehicle which is not subject to the motor vehicle sales and use tax shall be subject to the retail sales and use tax when sold, leased or rented.
Based on the foregoing, and since no motor vehicle sales and use tax has been paid on the charges for the rental of the semitrailer at issue, the retail sales and use tax applies to these rental charges.
Tote bins
As the tote bins are sold with the product, l find basis for removing them from the audit.
Contested sale
Due to the volume of sales in this case, the auditor sampled the Taxpayer's sales using one month to determine whether the Taxpayer was properly charging and collecting the sales tax on taxable sales made to its customers. In the sampled month, the auditor found several retail sales in which the Taxpayer failed to charge the sales tax even though no exemption certificate was furnished by the customer. The error factor derived from the sampled month was applied against gross sales for the other months occurring in the audit, and tax was assessed on the sampled and projected deficiencies.
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 taxpayer. When sampling techniques are understood and 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 audit techniques in this case were properly applied. The purpose of the audit sample is to determine an error factor for the entire audit period. Although the Virginia tax on the transaction in question may have been paid by the customer, there are likely similar transactions outside the sample period on which the Virginia tax has not been paid by this customer or other customers. Therefore, to remove the sale in question from the sample base would skew the sample and nullify its validity.
For the reasons stated above, and based on the department's policy as set out and established in similar cases [see P. D. 95-59 (3/27/95) and P. D. 95-93 (4/28/95)], I find no basis for recalculating the error factor. However, in fairness to the Taxpayer, the sale in question, which was included in the calculation of the sales error factor, will be detailed out of the total sales liability and applied as a credit against the assessment.
The audit will be revised in accordance with this determination, and the Taxpayer will receive a revised audit report and a revised bill. Payment should be sent to the address indicated on the bill, or to the attention of ********at the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880, within the next 45 days.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/11799R
Related Documents
Rulings of the Tax Commissioner