Tax Type
Retail Sales and Use Tax
Description
Deficiency assessment; Audit sample upheld.
Topic
Collection of Delinquent Tax
Date Issued
05-29-1998
May 29, 1998
Dear**********:
This is in reply to your letter of January 8, 1998, in which you seek correction of the department's sales and use tax audit assessment issued to ***** (the "Taxpayer'), for the period April 1994 through May 1997. I note that your concerns were discussed with the department's auditor and most of the issues have been resolved. I will address the remaining issues.
FACTS
The Taxpayer is a manufacturer and retailer of furniture products. The Taxpayer contends that a portion of the department's assessment, April 1, 1994 through September 30, 1994, is invalid and should be abated. The Taxpayer signed a waiver of time limitation for assessment of taxes through October 20, 1997. While the notice of assessment for the audit period is dated October 20, 1997, the Taxpayer did not receive the audit report until October 21, 1997. The Taxpayer believes that receipt of the audit report after the agreed waiver date renders the assessment for the protected period invalid.
Additionally, the Taxpayer states that untaxed contract sales were disclosed for only one customer based on a four-month sample, and that the customer has accrued and paid the taxes that were due. The Taxpayer disagrees with the auditor's use of the disclosed contract sales in its sample calculations. Since the customer has accrued and paid the taxes not charged by the Taxpayer, and there were no other untaxed contract sales disclosed by the audit, the Taxpayer seeks an exclusion of the contract sales derived from the sample computations, or in the alternative a detail audit of the contract sales for the entire audit period.
DETERMINATION
Statute of limitations
Title 23 of the Virginia Administrative Code (VAC) 10-20-160 defines the term "assessment' as the act of determining that a tax (or additional tax) is due and the amount of such tax. The remainder of this same section further states that:
This same section then specifically states that a written notice of assessment by the department is made on a form clearly labeled "Notice of Assessment' setting forth the date of the assessment, amount of assessment, and other pertinent data. The field audit report which discloses the basis on which an assessment is made does not constitute the medium by which an official notice of assessment is issued. The Taxpayer's receipt of the "Notice of Assessment' dated October 20, 1997 constitutes an official assessment by the Commonwealth of Virginia. Accordingly, I find that the assessment of tax and interest was issued within the statute of limitations as extended by the signed waiver of time limitations, and there is no basis to abate the assessment or any portion thereof.
Sample computations
Sampling is an audit technique of significant value that is widely used in both the public and private sectors and in all types of audits where a detailed audit would not prove beneficial either to the auditor or the taxpayer under audit. 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.
selected, and not to detail all transactions within the selected sample. Once the error factor is calculated, the factor is extrapolated over the entire audit period.
While the Virginia tax on the transactions 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. The removal of the sales in question from the sample base would alter the sample and nullify its validity. In fairness to the Taxpayer, however, the sales in question which were included in the calculation of the sales error factor have been removed from the total sales liability. I have enclosed a copy of Public Documents (P.D.'s) 91-256 (10/08/91), and 97-467 (12/02/97) which further illustrate the department's longstanding position with regard to sample calculations.
The auditor has indicated that a detailed audit of the contract sales in question was considered; however, the Taxpayer was unable to provide the requested information relating to all such sales. Accordingly, I find that the auditor's sample calculations were properly applied. I will, however, allow the Taxpayer 45 days to present the necessary information required by the auditor to complete a detailed audit of the contract sales. If such information is not available in that period of time, the assessment will be considered correct as issued and will become due and payable.
If you should have any additional questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.
Dear**********:
This is in reply to your letter of January 8, 1998, in which you seek correction of the department's sales and use tax audit assessment issued to ***** (the "Taxpayer'), for the period April 1994 through May 1997. I note that your concerns were discussed with the department's auditor and most of the issues have been resolved. I will address the remaining issues.
FACTS
The Taxpayer is a manufacturer and retailer of furniture products. The Taxpayer contends that a portion of the department's assessment, April 1, 1994 through September 30, 1994, is invalid and should be abated. The Taxpayer signed a waiver of time limitation for assessment of taxes through October 20, 1997. While the notice of assessment for the audit period is dated October 20, 1997, the Taxpayer did not receive the audit report until October 21, 1997. The Taxpayer believes that receipt of the audit report after the agreed waiver date renders the assessment for the protected period invalid.
Additionally, the Taxpayer states that untaxed contract sales were disclosed for only one customer based on a four-month sample, and that the customer has accrued and paid the taxes that were due. The Taxpayer disagrees with the auditor's use of the disclosed contract sales in its sample calculations. Since the customer has accrued and paid the taxes not charged by the Taxpayer, and there were no other untaxed contract sales disclosed by the audit, the Taxpayer seeks an exclusion of the contract sales derived from the sample computations, or in the alternative a detail audit of the contract sales for the entire audit period.
DETERMINATION
Statute of limitations
Title 23 of the Virginia Administrative Code (VAC) 10-20-160 defines the term "assessment' as the act of determining that a tax (or additional tax) is due and the amount of such tax. The remainder of this same section further states that:
-
-
- When an assessment is made by the Department, a written notice of the assessment must be delivered to the taxpayer by an employee of the Department, or mailed to the taxpayer at his last known address. The date that such notice is mailed or delivered is the date of the assessment for the purpose of any limitations on the time in which administrative or judicial remedies are available and for other any administrative purposes.
-
This same section then specifically states that a written notice of assessment by the department is made on a form clearly labeled "Notice of Assessment' setting forth the date of the assessment, amount of assessment, and other pertinent data. The field audit report which discloses the basis on which an assessment is made does not constitute the medium by which an official notice of assessment is issued. The Taxpayer's receipt of the "Notice of Assessment' dated October 20, 1997 constitutes an official assessment by the Commonwealth of Virginia. Accordingly, I find that the assessment of tax and interest was issued within the statute of limitations as extended by the signed waiver of time limitations, and there is no basis to abate the assessment or any portion thereof.
Sample computations
Sampling is an audit technique of significant value that is widely used in both the public and private sectors and in all types of audits where a detailed audit would not prove beneficial either to the auditor or the taxpayer under audit. 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.
selected, and not to detail all transactions within the selected sample. Once the error factor is calculated, the factor is extrapolated over the entire audit period.
While the Virginia tax on the transactions 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. The removal of the sales in question from the sample base would alter the sample and nullify its validity. In fairness to the Taxpayer, however, the sales in question which were included in the calculation of the sales error factor have been removed from the total sales liability. I have enclosed a copy of Public Documents (P.D.'s) 91-256 (10/08/91), and 97-467 (12/02/97) which further illustrate the department's longstanding position with regard to sample calculations.
The auditor has indicated that a detailed audit of the contract sales in question was considered; however, the Taxpayer was unable to provide the requested information relating to all such sales. Accordingly, I find that the auditor's sample calculations were properly applied. I will, however, allow the Taxpayer 45 days to present the necessary information required by the auditor to complete a detailed audit of the contract sales. If such information is not available in that period of time, the assessment will be considered correct as issued and will become due and payable.
If you should have any additional questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.
Rulings of the Tax Commissioner