Tax Type
Retail Sales and Use Tax
Description
Audit procedure; Audit sample based on contested sale.
Topic
Collection of Delinquent Tax
Date Issued
06-23-1998
June 23, 1998
Dear**********:
In your letter of March 27, 1998, you seek correction of the use tax assessment issued to ***** (the Taxpayer) as a result of an audit. Copies of all referenced cites are enclosed.
FACTS
The Taxpayer is a general contractor. An audit for the period January 1994 through December 1996 resulted in the assessment of use tax on untaxed purchases of tangible personal property used or consumed in the Taxpayer's operations.
The Taxpayer takes exception to the method used to calculate the error factor. The Taxpayer maintains that invoices with Virginia sales tax charged were included in the purchases exceptions used to calculate the error factor.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-6030 provides that ``[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased.'
Pursuant to Code of Virginia Sec. 58.1-610 and 23 VAC 10-210-410, every contractor is deemed the final user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts. Accordingly, a real property contractor must pay the Virginia sales tax charged by its vendors on its purchases of tangible personal property. If a vendor fails to charge and collect the sales tax on a taxable transaction, regardless of whether or not the vendor is registered to charge and collect the Virginia sales or use tax, the contractor must report and remit the consumer use tax to the department on such untaxed purchases. As a real property construction contractor, the Taxpayer is clearly obligated to report and pay the consumer use tax on any untaxed purchases of tangible personal property.
The purpose of this fourth audit was to determine the extent to which the Taxpayer has complied with Virginia's use tax reporting and payment requirements and to assess any use tax deficiencies. The sampling technique used in this case revealed that the Taxpayer had failed to report and remit the use tax on all of its untaxed purchases of tangible personal property made during the period of audit. The 1995 sample is clearly representative of the Taxpayer's degree of noncompliance with the use tax laws.
However, it was discovered that the audit sample included certain purchases from two landscaping companies who had been recently audited by the department and assessed sales tax on some untaxed sales made to the Taxpayer. These particular purchase exceptions were included in the sample period as well as separately credited in the Taxpayer's audit. However, they were not removed from the sample projection since they were typical purchases made by the Taxpayer as a contractor. The typical nature of these purchases is further evidenced by the fact that the audit clearly reveals that the Taxpayer made purchases of landscape materials from other companies.
Accordingly, the inclusion of these purchases in the sample is necessary so that the sample taken remains representative of the period. Otherwise, to extend the credits at issue to the entire audit period would defeat the purpose of the sample concept and invalidate the sample, i.e., the degree of deficiency which is representative of the Taxpayer's noncompliance with reporting and paying the use tax on untaxed purchases.
Based on all of the foregoing, l find that the sampling audit technique has been properly applied in this case and, therefore, must conclude that there is insufficient basis to allow the adjustment requested by the Taxpayer. Accordingly, the assessment as issued is proper.
Since the assessment has not been paid in full, interest accrues on the outstanding balance in accordance with 23 VAC 10-210-2030(C). Bill *********has been updated with interest to present and has an outstanding balance of *****. To preclude further interest charges, the Taxpayer should pay ***** to the department within the next 30 days.
Please send such payment to the Department of Taxation, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any further questions, please contact *****, Audit Supervisor of the department's District Office, at *****.
Dear**********:
In your letter of March 27, 1998, you seek correction of the use tax assessment issued to ***** (the Taxpayer) as a result of an audit. Copies of all referenced cites are enclosed.
FACTS
The Taxpayer is a general contractor. An audit for the period January 1994 through December 1996 resulted in the assessment of use tax on untaxed purchases of tangible personal property used or consumed in the Taxpayer's operations.
The Taxpayer takes exception to the method used to calculate the error factor. The Taxpayer maintains that invoices with Virginia sales tax charged were included in the purchases exceptions used to calculate the error factor.
DETERMINATION
Title 23 of the Virginia Administrative Code (VAC) 10-210-6030 provides that ``[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased.'
Pursuant to Code of Virginia Sec. 58.1-610 and 23 VAC 10-210-410, every contractor is deemed the final user or consumer of all tangible personal property furnished to him or by him in connection with real property construction, reconstruction, installation, repair, and similar contracts. Accordingly, a real property contractor must pay the Virginia sales tax charged by its vendors on its purchases of tangible personal property. If a vendor fails to charge and collect the sales tax on a taxable transaction, regardless of whether or not the vendor is registered to charge and collect the Virginia sales or use tax, the contractor must report and remit the consumer use tax to the department on such untaxed purchases. As a real property construction contractor, the Taxpayer is clearly obligated to report and pay the consumer use tax on any untaxed purchases of tangible personal property.
The purpose of this fourth audit was to determine the extent to which the Taxpayer has complied with Virginia's use tax reporting and payment requirements and to assess any use tax deficiencies. The sampling technique used in this case revealed that the Taxpayer had failed to report and remit the use tax on all of its untaxed purchases of tangible personal property made during the period of audit. The 1995 sample is clearly representative of the Taxpayer's degree of noncompliance with the use tax laws.
However, it was discovered that the audit sample included certain purchases from two landscaping companies who had been recently audited by the department and assessed sales tax on some untaxed sales made to the Taxpayer. These particular purchase exceptions were included in the sample period as well as separately credited in the Taxpayer's audit. However, they were not removed from the sample projection since they were typical purchases made by the Taxpayer as a contractor. The typical nature of these purchases is further evidenced by the fact that the audit clearly reveals that the Taxpayer made purchases of landscape materials from other companies.
Accordingly, the inclusion of these purchases in the sample is necessary so that the sample taken remains representative of the period. Otherwise, to extend the credits at issue to the entire audit period would defeat the purpose of the sample concept and invalidate the sample, i.e., the degree of deficiency which is representative of the Taxpayer's noncompliance with reporting and paying the use tax on untaxed purchases.
Based on all of the foregoing, l find that the sampling audit technique has been properly applied in this case and, therefore, must conclude that there is insufficient basis to allow the adjustment requested by the Taxpayer. Accordingly, the assessment as issued is proper.
Since the assessment has not been paid in full, interest accrues on the outstanding balance in accordance with 23 VAC 10-210-2030(C). Bill *********has been updated with interest to present and has an outstanding balance of *****. To preclude further interest charges, the Taxpayer should pay ***** to the department within the next 30 days.
Please send such payment to the Department of Taxation, Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any further questions, please contact *****, Audit Supervisor of the department's District Office, at *****.
Rulings of the Tax Commissioner