Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments; Lack of records.
Topic
Collection of Delinquent Tax
Date Issued
04-21-1998
April 21, 1998
Dear*************:
This is in response to your letter seeking correction of the retail sales and use tax audit assessment issued to ***** (the Taxpayer). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a distributor of automotive bumpers. An audit for the period November 1992 through September 1995 resulted in an assessment of sales tax on unremitted sales tax collections, unreported sales, and sales which lacked an exemption certificate. The sales tax assessed under bill ***has not been paid. Use tax is assessed on untaxed purchases under bill*** which has been paid.
The Taxpayer does not dispute the use tax portion of the audit but takes exception to the sales tax portion of the audit. The Taxpayer claims that most all of its sales are exempt and therefore requests abatement of the contested sales tax.
DETERMINATION
Pursuant to Code of Virginia § 58.1-633(A) and Title 23 of the Virginia Administrative Code (VAC) 10-210-470, every dealer registered to collect and remit the sales or use tax is required to keep and maintain for three years adequate and complete records necessary to determine and substantiate the amount of its tax liability, including exemption and resale certificates. Of additional importance, I would note that Code of Virginia § 58.1-633(B) requires every wholesaler and jobber in Virginia to:
I would also note that Code of Virginia § 58.1-205 deems any tax assessment issued by the Department of Taxation as prima facie correct. Accordingly, the burden of proof is upon the Taxpayer to establish through convincing evidence that a tax assessment does not apply. Based on the foregoing authorities, the Taxpayer clearly has an obligation to substantiate any exemption claimed in connection with the sale of tangible personal property.
Gross sales differences. In this case, the department's audit staff has met with you on several occasions to obtain and review additional information for the purpose of revising the audit assessment. The most significant issue in the audit is the difference between gross sales reported to the department and gross sales reported on federal income tax returns for the taxable years 1992 to 1995.
For example, the Taxpayer reported gross sales of ***** to the department for 1993 but reported gross sales of ***** on its 1993 federal income tax return. Accordingly, a total reporting difference exists in the amount of ***** for 1993. At the last meeting, however, it is my understanding that you were able to show that the difference in the 1993 gross sales was due partly to a loan (approximately *****) erroneously reported as gross sales on the Taxpayer's 1993 federal income tax return. Based on this evidence, I find basis to remove the loan measure from the department's audit.
However, no explanation or documentation could be offered for the remaining 1993 difference of *****. Furthermore, no other documentation has been presented to explain the reporting differences found for the years 1992, 1994 and 1995. Absent evidence to substantiate that an exemption applies, I find no basis to remove the remaining sales differences found in the audit.
Exemption certificates. Code of Virginia § 58.1-623 and Title 23 VAC 10-210-280(A) provide that all sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice by the department.
In this case, eleven sales were held taxable because the exemption certificate was either missing or incomplete. Before the audit was finalized, it is my understanding that the Taxpayer was given an opportunity to obtain exemption certificates from the purchasers of these contested sales, but only one exemption certificate has been submitted for such sales. As that exemption certificate is not dated and is missing the business address of the purchaser and the title of the person signing the certificate, it is incomplete. Furthermore, the registration number shown on the certificate is not valid. For these reasons, this exemption certificate is not acceptable as presented.
Sales tax collected but not remitted. It is my understanding that there were sales invoices with sales tax charged and collected by the Taxpayer but not reported and paid to the department. Accordingly, the sales tax assessed on these sales is proper.
Conclusion. The audit will be revised in accordance with this determination, and a revised bill ***** with interest updated will be sent to the Taxpayer under separate cover. In the absence of evidence to the contrary, this revised bill constitutes a valid assessment.
If you have any questions about this determination, please contact ***** of my tax policy staff at *****.
Dear*************:
This is in response to your letter seeking correction of the retail sales and use tax audit assessment issued to ***** (the Taxpayer). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a distributor of automotive bumpers. An audit for the period November 1992 through September 1995 resulted in an assessment of sales tax on unremitted sales tax collections, unreported sales, and sales which lacked an exemption certificate. The sales tax assessed under bill ***has not been paid. Use tax is assessed on untaxed purchases under bill*** which has been paid.
The Taxpayer does not dispute the use tax portion of the audit but takes exception to the sales tax portion of the audit. The Taxpayer claims that most all of its sales are exempt and therefore requests abatement of the contested sales tax.
DETERMINATION
Pursuant to Code of Virginia § 58.1-633(A) and Title 23 of the Virginia Administrative Code (VAC) 10-210-470, every dealer registered to collect and remit the sales or use tax is required to keep and maintain for three years adequate and complete records necessary to determine and substantiate the amount of its tax liability, including exemption and resale certificates. Of additional importance, I would note that Code of Virginia § 58.1-633(B) requires every wholesaler and jobber in Virginia to:
-
- . . . keep a record of all sales of tangible personal property, whether such sales be for cash or on terms of credit. Such records shall include the name and address of the purchaser, the number of the certificate of registration issued to the purchaser, the date of the purchase, the article purchased, and the price at which the article is sold to the purchaser.
- . . . keep a record of all sales of tangible personal property, whether such sales be for cash or on terms of credit. Such records shall include the name and address of the purchaser, the number of the certificate of registration issued to the purchaser, the date of the purchase, the article purchased, and the price at which the article is sold to the purchaser.
I would also note that Code of Virginia § 58.1-205 deems any tax assessment issued by the Department of Taxation as prima facie correct. Accordingly, the burden of proof is upon the Taxpayer to establish through convincing evidence that a tax assessment does not apply. Based on the foregoing authorities, the Taxpayer clearly has an obligation to substantiate any exemption claimed in connection with the sale of tangible personal property.
Gross sales differences. In this case, the department's audit staff has met with you on several occasions to obtain and review additional information for the purpose of revising the audit assessment. The most significant issue in the audit is the difference between gross sales reported to the department and gross sales reported on federal income tax returns for the taxable years 1992 to 1995.
For example, the Taxpayer reported gross sales of ***** to the department for 1993 but reported gross sales of ***** on its 1993 federal income tax return. Accordingly, a total reporting difference exists in the amount of ***** for 1993. At the last meeting, however, it is my understanding that you were able to show that the difference in the 1993 gross sales was due partly to a loan (approximately *****) erroneously reported as gross sales on the Taxpayer's 1993 federal income tax return. Based on this evidence, I find basis to remove the loan measure from the department's audit.
However, no explanation or documentation could be offered for the remaining 1993 difference of *****. Furthermore, no other documentation has been presented to explain the reporting differences found for the years 1992, 1994 and 1995. Absent evidence to substantiate that an exemption applies, I find no basis to remove the remaining sales differences found in the audit.
Exemption certificates. Code of Virginia § 58.1-623 and Title 23 VAC 10-210-280(A) provide that all sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice by the department.
In this case, eleven sales were held taxable because the exemption certificate was either missing or incomplete. Before the audit was finalized, it is my understanding that the Taxpayer was given an opportunity to obtain exemption certificates from the purchasers of these contested sales, but only one exemption certificate has been submitted for such sales. As that exemption certificate is not dated and is missing the business address of the purchaser and the title of the person signing the certificate, it is incomplete. Furthermore, the registration number shown on the certificate is not valid. For these reasons, this exemption certificate is not acceptable as presented.
Sales tax collected but not remitted. It is my understanding that there were sales invoices with sales tax charged and collected by the Taxpayer but not reported and paid to the department. Accordingly, the sales tax assessed on these sales is proper.
Conclusion. The audit will be revised in accordance with this determination, and a revised bill ***** with interest updated will be sent to the Taxpayer under separate cover. In the absence of evidence to the contrary, this revised bill constitutes a valid assessment.
If you have any questions about this determination, please contact ***** of my tax policy staff at *****.
Rulings of the Tax Commissioner