Tax Type
Retail Sales and Use Tax
Description
Deficiency assessment; Estimated assessment; lack of documents.
Topic
Collection of Delinquent Tax
Date Issued
05-08-1998
May 8, 1998
Dear*****
In your letter of January 29, 1998, you seek correction of the sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit.
FACTS
The Taxpayer is a distributor of paint products through stores located in Virginia and elsewhere. An audit for the period January 1994 through September 1997 resulted in the assessment of sales tax on untaxed sales for which an exemption could not be verified and use tax on untaxed items purchased for use in the Taxpayer's operation.
The Taxpayer takes exception to the sales tax assessed in this audit and maintains that the error factor is not representative of its Virginia sales activity. The Taxpayer has generated new sales transaction reports for the entire audit period in order to more accurately reflect its sales activities within Virginia and requests that a new sample test be conducted based on information contained in such reports.
Once the test months are agreed upon, the Taxpayer agrees to furnish all reports and supporting documentation, including exemption certificates, directly to the auditor.
DETERMINATION
Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-470 (copy enclosed), all dealers who are liable for the collection of sales tax and remittance of use tax are required to maintain adequate and complete records necessary to accurately determine the amount of their tax liability. This requirement includes maintaining exemption certificates furnished by customers who claim exemption from the sales tax. Absent a valid, completed and signed exemption certificate, the Taxpayer is obligated to charge and collect the sales tax on all retail sales made in Virginia. See 23 VAC 10-210-280, copy enclosed. For sales made in interstate or foreign commerce, sufficient documentation must be maintained for each transaction to clearly establish the nature of such sales. See 23 VAC 10-210-780; copy enclosed.
In this case, it is my understanding that the Taxpayer lacked complete records at the time of audit to enable the department's auditor to accurately determine its liability for the Virginia sales and use tax. Accordingly, the best information available at the time of audit was used to estimate the Taxpayer's sales tax and use tax liabilities.
As the Taxpayer has new information to more accurately determine its sales tax liability, such information should be furnished to the department's auditor. If an adjustment is warranted based on the new information, the sales tax portion of the audit findings will be revised.
I would note that the Taxpayer's liability for the purchase portion of the audit was initially based on incomplete and summary information. Accordingly, the Taxpayer must also make available those detailed records of fixed assets and expensed purchases necessary to conduct a proper examination. For example, the Taxpayer needs to make available sufficient records for account payables and withdrawals from inventory (especially samples). If additional tax deficiencies are found, tax and interest will be assessed only for the open periods of the audit (i.e., periods within the current statute of limitations for assessing tax).
An auditor will contact the Taxpayer to arrange for the review of the requested information. When the department has completed its revision, revised assessments will be sent to the Taxpayer for the outstanding liabilities.
If you have any questions about the audit findings, please contact *****, Audit Supervisor, at *****. If you have any questions about this response, please contact ***** of my tax policy staff at *****.
Dear*****
In your letter of January 29, 1998, you seek correction of the sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit.
FACTS
The Taxpayer is a distributor of paint products through stores located in Virginia and elsewhere. An audit for the period January 1994 through September 1997 resulted in the assessment of sales tax on untaxed sales for which an exemption could not be verified and use tax on untaxed items purchased for use in the Taxpayer's operation.
The Taxpayer takes exception to the sales tax assessed in this audit and maintains that the error factor is not representative of its Virginia sales activity. The Taxpayer has generated new sales transaction reports for the entire audit period in order to more accurately reflect its sales activities within Virginia and requests that a new sample test be conducted based on information contained in such reports.
Once the test months are agreed upon, the Taxpayer agrees to furnish all reports and supporting documentation, including exemption certificates, directly to the auditor.
DETERMINATION
Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-470 (copy enclosed), all dealers who are liable for the collection of sales tax and remittance of use tax are required to maintain adequate and complete records necessary to accurately determine the amount of their tax liability. This requirement includes maintaining exemption certificates furnished by customers who claim exemption from the sales tax. Absent a valid, completed and signed exemption certificate, the Taxpayer is obligated to charge and collect the sales tax on all retail sales made in Virginia. See 23 VAC 10-210-280, copy enclosed. For sales made in interstate or foreign commerce, sufficient documentation must be maintained for each transaction to clearly establish the nature of such sales. See 23 VAC 10-210-780; copy enclosed.
In this case, it is my understanding that the Taxpayer lacked complete records at the time of audit to enable the department's auditor to accurately determine its liability for the Virginia sales and use tax. Accordingly, the best information available at the time of audit was used to estimate the Taxpayer's sales tax and use tax liabilities.
As the Taxpayer has new information to more accurately determine its sales tax liability, such information should be furnished to the department's auditor. If an adjustment is warranted based on the new information, the sales tax portion of the audit findings will be revised.
I would note that the Taxpayer's liability for the purchase portion of the audit was initially based on incomplete and summary information. Accordingly, the Taxpayer must also make available those detailed records of fixed assets and expensed purchases necessary to conduct a proper examination. For example, the Taxpayer needs to make available sufficient records for account payables and withdrawals from inventory (especially samples). If additional tax deficiencies are found, tax and interest will be assessed only for the open periods of the audit (i.e., periods within the current statute of limitations for assessing tax).
An auditor will contact the Taxpayer to arrange for the review of the requested information. When the department has completed its revision, revised assessments will be sent to the Taxpayer for the outstanding liabilities.
If you have any questions about the audit findings, please contact *****, Audit Supervisor, at *****. If you have any questions about this response, please contact ***** of my tax policy staff at *****.
Rulings of the Tax Commissioner