Tax Type
Retail Sales and Use Tax
Description
An adjustment of the extrapolation and error factor is not warranted
Topic
Appropriateness of Audit Methodology
Date Issued
04-26-2007
April 26, 2007
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer"), by the Department for the period of January 1999 through July 2004. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer provides information technology and environmental consulting services. The Taxpayer was audited by the Department and the auditor chose the period January 2003 through July 2004 as the sample period. The error factor was computed and extrapolated over the entire audit period. The Taxpayer agrees to the results of the extrapolation for the years 1999 through 2001, but disagrees with extrapolating the results for the period 2002 through 2004. During 2002 through 2004, the Taxpayer's level of purchases and revenue increased substantially. The Taxpayer contends that the extrapolation should account for the increase in purchases and revenue from 2002 through 2004.
DETERMINATION
The purpose of the audit sample is to determine a factor for errors within a representative select period. Once the error factor is determined, the factor is extrapolated over the entire audit period. The purpose of the projection is to account for likely similar transactions on which Virginia tax has not been paid. Every effort is made to objectively select sample periods that are representative of the period being audited and to reach a consensus with the taxpayer concerning the validity of the sample.
Upon review of the audit report and the information presented, I find no basis to invalidate the sample. While the Taxpayer claims that the error factor used by the auditor does not take into account the increase in purchases and revenue from 2002 to 2004, this claim does not by itself render the sample inaccurate. The sample includes periods from both before and after the growth in purchases and revenue. Thus, the error factor was computed based on months of growth and months of lower revenue. The error factor was then applied to the entire audit period, which includes months of growth and months of lower revenue. Therefore, an adjustment of the extrapolation and error factor is not warranted. This is consistent with Public Document 05-73 (May 9, 2005).
The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct, and the burden is upon the taxpayer to prove otherwise. The Taxpayer has not met this burden. Accordingly, the assessment is upheld as issued.
A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the assessment is paid within 30 days from the date of the updated bill.
The public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/51791i
Rulings of the Tax Commissioner