Tax Type
Retail Sales and Use Tax
Description
Deficiency assessments, Taxpayer failed to maintain records to substantiate tax liability
Topic
Collection of Delinquent Tax
Records/Returns/Payments
Date Issued
05-18-1999
May 18, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This is in response to your letter requesting correction of the retail sales and use tax audit assessment issued to *************** (the Taxpayer). I apologize for the delay in responding.
FACTS
The Taxpayer operates a restaurant. An audit for the period December 1994 through November 1997 resulted in an assessment of sales tax based on a finding that sales were underreported. It is my understanding that the initial findings of January 1997 revealed that the Taxpayer had failed to maintain any records to substantiate the reported sales tax liability, and the Taxpayer had estimated its reported sales tax. At that time, the Taxpayer was instructed to organize its existing records and begin maintaining proper sales records. For the period in which records were maintained, i.e., February 1997 through November 1997, no exceptions were found.
However, as there were no sales tax records for the period December 1994 through January 1997, the auditor relied on the best information available to reconstruct the Taxpayer's sales tax liability. The Taxpayer protests the sales tax assessed on the reconstructed sales and maintains that the figures used by the auditor to compute the assessment are overstated. Specifically, the Taxpayer contends that its sales volume and prices for the periods at issue were lower than estimates calculated by the auditor.
DETERMINATION
Dealers who are registered for sales and use tax purposes are under a legal obligation to collect and report the proper amount of sales tax to the department. As part of this legal obligation, Code of Virginia § 58.1-633 requires every dealer "to keep and preserve suitable records of the sales, leases, or purchases,... and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner.' This record keeping requirement is further explained in Title 23 of the Virginia Administrative Code (VAC) 10-210-470, copy enclosed.
When a dealer fails to maintain adequate records, the department is authorized by Code of Virginia § 58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists. When an assessment is issued under these circumstances, the above cited statute deems such assessment to be prima facie correct. The burden is upon the Taxpayer to prove that the audit methodology applied in this case is flawed in some manner as to render the assessment invalid.
In this case, the Taxpayer relies on and cites several circumstances to claim that the reconstructed sales are overstated. However, the information presented does not establish that the audit methodology applied in this case is flawed. On the contrary, there does not appear to be any distortion, misapplication or unreasonableness in the audit methodology applied in this case.
Therefore, absent proof to the contrary, the assessment is proper as issued. The Taxpayer will be sent an updated bill, which should be paid by June 18. 1999, to avoid additional interest charges.
If you have any questions about this response, please contact ***** tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/17168R
Rulings of the Tax Commissioner