Tax Type
Retail Sales and Use Tax
Description
Incorrect Tax Assessment; Compliance Penalty for failure to remit all tax collected
Topic
Computation of Tax
Penalties
Records/Returns/Payments
Date Issued
06-19-2012
June 19, 2012
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek correction of the retail sales and use tax assessments issued for the periods March 2008 through February 2011 and June 2008 through February 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer owns and operates doughnut shops that sell doughnuts, muffins, bagels and other assorted baked goods, as well as coffee and various other beverages. The Taxpayer contests the audit assessment and requests that the assessed penalties be abated.
The Taxpayer maintains that almost all of its sales consist of take-out orders in which customers purchase goods for human consumption. The Taxpayer uses software that calculates sales of goods and computes the applicable sales tax on its cash registers at the point of sale. The Taxpayer maintains that the software incorrectly calculated the amount of tax to be collected from customers. The Taxpayer acknowledges it collected the 5 percent sales tax from its customers.
DETERMINATION
Incorrect Tax Assessment
Relying on Va. Code §§ 58.1-603, 58.1-611.1 A 2 and 58.1-605, the Taxpayer states that the correct rate of tax on the Taxpayer's gross sales for the audit period is 2.5 percent. Relying on Va. Code § 58.1-625, the Taxpayer maintains that it remitted the correct tax levied by the chapter, even though it collected a larger amount from its customers. The Taxpayer contends the assessment made by the field auditor effectively converts the rate from the correct 2.5 percent rate to a 5 percent rate, which the Taxpayer states is clearly incorrect under the Code of Virginia. As a result, the Taxpayer maintains that the assessment of additional tax is incorrect and should be set aside.
The Taxpayer asserts that the determination in Public Document (P.D.) 10-129 (7/7/10) is incorrect, and the auditor erroneously relied on this determination in making the assessment. The Taxpayer maintains that the language in Va. Code § 58.1-625 only requires the Taxpayer to remit the tax levied by the Code of Virginia and does not require the Taxpayer to remit tax collected over the amount levied by the statute. The Taxpayer contends that it collected the correct amount of sales tax on its sales and remitted the correct amount to the Department as required by the statute.
Virginia Code § 58.1-625 requires registered dealers to collect the sales tax. The statute provides, in pertinent part:
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- Notwithstanding any exemption from taxes which any dealer now or hereafter may enjoy under the Constitution or laws of this or any other state, or of the United States, such dealer shall collect such tax from the purchaser, consumer, or lessee and shall pay the same over to the Tax Commissioner as herein provided.
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- Any dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously or illegally collected tax unless or until he can affirmatively show that the tax has since been refunded to the purchaser or credited to his account.
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- Virginia Code § 58.1-16 provides:
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- Any person responsible for collecting any tax administered by the Department [of Taxation] or the Division of Motor Vehicles who overcollects such tax and fails to account for and pay such overcollection to the appropriate state agency by the time his regular monthly or quarterly return is due shall be liable for the amount of such overcollection, and in addition a penalty of twenty-five percent of such overcollection. The Commissioner administering such tax may waive such penalty for good cause.
P.D. 08-106 (6/20/08) addresses the issue of overcollection of tax by dealers. The public document provides that Va. Code § 58.1-16 is a statute of general application. It further provides that this general provision should be read in conjunction with Va. Code § 58.1-625. The twenty-five percent overcollection penalty considered in Va. Code § 58.1-16 is superseded by Va. Code § 58.1-635, which imposes up to a thirty percent penalty for a failure to account for overcollected sales tax or any other sales tax, as well as, imposes a fraud penalty of fifty percent.
Virginia Code § 58.1-611.1 imposes a reduced sales tax rate on food purchased for human consumption. Pursuant to Virginia Tax Bulletin 05-78 (5/31/05), doughnut and pastry shops generally should charge the reduced sales tax rate on sales of eligible food and beverages.1 [Emphasis added.] Accordingly, the Taxpayer is eligible to charge the reduced sales tax rate on sales of eligible foods and beverages to its customers.
In this instance, the Taxpayer charged and collected sales tax at the 5 percent rate on sales made to its customers during the audit period. For the same period, the Taxpayer remitted tax related to these sales to the Department at the 2.5 percent rate. The fact that the Taxpayer is eligible to charge its customers the reduced sales tax rate does not alleviate the Taxpayer from having to remit to the Department all of the tax collected from sales made to its customers during the audit period.
As the Taxpayer points out, the Code of Virginia does require dealers to charge, collect and remit the tax levied by Title 58, Chapter 6. However, Va. Code §§ 58.1-16 and 58.1-625 require that the Taxpayer remit all tax collected to the Department, to include erroneously collected tax. The Taxpayer's argument that it is only required to remit the tax levied by the Code of Virginia is without merit. Accordingly, in accordance with the aforementioned authorities, the tax assessed in the audit is correct and will not be abated.
Compliance Penalty
The Taxpayer was assessed penalty in the audit for failure to remit all tax collected. The Taxpayer maintains that the assessment of penalty is incorrect and should be abated based upon the Taxpayer's contention that it remitted the correct amount of tax to the Department.
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- Virginia Code § 58.1-635 A states:
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- When any dealer fails to make any return and pay the full amount of the tax required by this chapter, there shall be imposed, in addition to other penalties provided herein, a specific penalty to be added to the tax in the amount of six percent if the failure is for not more than one month, with an additional six percent for each additional month, or fraction thereof, during which the failure continues, not to exceed thirty percent in the aggregate.
In P.D. 11-106 (6/14/11), the taxpayer operated as a restaurant. During the audit period, the taxpayer collected sales tax at the 5 percent rate and remitted tax to the Department at the 2.5% rate. The taxpayer was assessed tax for the difference between the amount of sales tax collected and the amount of sales tax remitted. It was held that the compliance penalty assessed in the audit was correct because the taxpayer collected tax that it did not remit to the Department.
In this instance, the Taxpayer collected sales tax at the 5 percent rate and remitted tax to the Department at the 2.5 percent rate. The Taxpayer did not remit all of the tax collected to the Department. Accordingly, the penalty addressed in Va. Code § 58.1-635 was properly assessed in the audit and will not be abated.
Amnesty Penalty
The Taxpayer contests the assessment of amnesty penalty. Relying on the Virginia Tax Amnesty Program Guidelines, the Taxpayer maintains that because the assessments are dated after July 9, 2009, the amnesty penalty does not apply.
Virginia Code § 58.1-1840.1 establishes the Virginia Tax Amnesty Program as applicable to any tax liability eligible for relief under such program. Section F of the statute further provides:
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- If any taxpayer eligible for amnesty under this section, and under the rules and guidelines established by the Tax Commissioner retains any outstanding balance after the close of the Virginia Tax Amnesty Program because of the nonpayment, underpayment, nonreporting or underreporting of any tax liability eligible for relief under the Virginia Tax Amnesty Program, then such balance shall be subject to a 20 percent penalty on the unpaid tax. This penalty shall be in addition to all other penalties that may apply to the taxpayer. [Emphasis added.]
Pursuant to the Virginia Tax Amnesty Program Guidelines, the amnesty eligible period for sales tax include periods up to and including May 2009. In this instance, there are periods during the audit period in which the Taxpayer did not remit the full amount of tax collected from its customers. Those periods fall within the amnesty eligible period. In accordance with Va. Code 58.1-1840.1 F 1, the amnesty penalty applies to all periods where an outstanding balance remains after the close of the Virginia Tax Amnesty Program because of the underpayment or underreporting of tax. Accordingly, the amnesty penalty was correctly assessed in the audit and will not be abated.
CONCLUSION
Based upon this determination, the assessment is correct. Revised bills, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessments are paid within 30 days from the date of the bills. The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****. If the Taxpayer has any questions concerning payment of the assessment, please contact ***** at *****.
The Code of Virginia sections, tax bulletin and public documents cited 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 response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-4934896806.P
1. See Virginia Tax Bulletin 99-295 (10/1/99) for additional information concerning the reduced food tax rate.
Rulings of the Tax Commissioner