Tax Type
Retail Sales and Use Tax
Description
Audit sample technique; Integral part of business activity
Topic
Collection of Delinquent Tax
Date Issued
12-04-1998
December 4, 1998
Re: Sec. 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 January 1995 through October 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a distributor of electronic components. As a result of the department's audit, an assessment was issued for untaxed sales. The Taxpayer takes exception to the sampling method used to assess the tax. The auditor performed a one month sales sample which the Taxpayer requested at the time of the audit. The auditor found two sales in which the Taxpayer did not collect the sales tax.
The resulting error factor was extrapolated for sales during the entire audit period.
The Taxpayer takes exception to the department's method used to assess the tax and claims that the error factor used to extrapolate the sampled deficiency is incorrect and overstates the Taxpayer's liability. The Taxpayer maintains that the customers self-assessed use tax on the two transactions included in the sample and argues that there is no evidence that a more detailed audit would reveal transactions outside the sample period on which Virginia tax had not been paid. The Taxpayer requests a refund of taxes and interest assessed based on improperly applied audit techniques.
DETERMINATION
Despite the Taxpayer's contentions, I can find no basis to invalidate the sample period used to calculate the error factor and extrapolated over the audit period. 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. 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 sales in this case appear to be an integral part of the Taxpayer's business activity.
Based on the foregoing, I find that the sampling techniques have been properly applied in this case. Accordingly, the assessment as issued is proper and there is no basis to refund the tax and interest paid. 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/13756T
Re: Sec. 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 January 1995 through October 1997. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a distributor of electronic components. As a result of the department's audit, an assessment was issued for untaxed sales. The Taxpayer takes exception to the sampling method used to assess the tax. The auditor performed a one month sales sample which the Taxpayer requested at the time of the audit. The auditor found two sales in which the Taxpayer did not collect the sales tax.
The resulting error factor was extrapolated for sales during the entire audit period.
The Taxpayer takes exception to the department's method used to assess the tax and claims that the error factor used to extrapolate the sampled deficiency is incorrect and overstates the Taxpayer's liability. The Taxpayer maintains that the customers self-assessed use tax on the two transactions included in the sample and argues that there is no evidence that a more detailed audit would reveal transactions outside the sample period on which Virginia tax had not been paid. The Taxpayer requests a refund of taxes and interest assessed based on improperly applied audit techniques.
DETERMINATION
Despite the Taxpayer's contentions, I can find no basis to invalidate the sample period used to calculate the error factor and extrapolated over the audit period. 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. 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 sales in this case appear to be an integral part of the Taxpayer's business activity.
Based on the foregoing, I find that the sampling techniques have been properly applied in this case. Accordingly, the assessment as issued is proper and there is no basis to refund the tax and interest paid. 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/13756T
Rulings of the Tax Commissioner