Tax Type
Retail Sales and Use Tax
Description
Taxpayer assessed tax on untaxed sales to a customer.
Topic
Collection of Tax
Credits
Records/Returns/Payments
Date Issued
07-03-2013
July 3, 2013
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the "Taxpayer") for the audit period April 2009 through March 2012.
FACTS
The Taxpayer operates as a commercial textile services company providing rental and laundry services for linens and uniforms. The Taxpayer is also a distributor of hygiene products. The Department's audits disclosed that the Taxpayer made sales for which the sales tax was not collected, as well as purchases for which tax was not paid to suppliers or accrued and remitted to the Department. The Taxpayer states that one of its customers has provided proof that the use tax on purchases from the Taxpayer was accrued and paid to the Department. Based on the customer's documentation, the Taxpayer has paid that portion of the Department's assessments it believes to be correct. The Taxpayer seeks confirmation from the Department that the amounts paid represent full payment and that the balances should be abated.
DETERMINATION
In Public Document (P.D.) 06-122 (10/17/06), the taxpayer was assessed tax on untaxed sales to a customer. The taxpayer contended that the sales should have been removed from the audit sample because the customer paid the tax on the transactions through its own volition or by audit assessment. The determination provides that the purpose of the audit sample is to determine an error factor for the entire audit period and that there are likely similar transactions outside the sample period on which the Virginia tax had not been paid. Therefore, any removal of the sales in question from the sample base would have caused the sample to be in error. The taxpayer made a number of untaxed sales during the sample period that were not supported by exemption certificates or direct pay permits. The taxpayer's obligation to collect sales tax on sales to its customers was not dependent on whether such customers paid use tax directly to the Department. The only exception to this general rule is when the purchaser provides the seller with a valid exemption certificate or a valid direct pay permit.
There is always the possibility that isolated errors may occur that are not typical of a taxpayer's operations. However, for an item to be removed from an audit sample, the Taxpayer must establish that the transactions at issue are isolated events and not a normal part of the Taxpayer's operations. Virginia Code § 58.1-205 provides that any assessment of a tax by the Department shall be deemed prima facie correct. The burden of proof lies with the Taxpayer to prove the assessment is incorrect.
While the Virginia tax on some of the transactions may have been paid by the customer, there are likely similar transactions outside the sample period on which the Virginia tax has not been paid. Accordingly, I find the audit sample as computed by the auditor to be a valid representation of the Taxpayer's period of audit.
Credits
The Department has previously addressed the issue of credits included in sample calculations. In those prior cases, sales held taxable in the audit in which the customers self-assessed the use tax were contested. The Department upheld the sales audit sample techniques while finding no basis for recalculating the sales error factors. However, credit was given against the assessment for the taxes paid by the customers. See P.D.s 97-51 (2/10/97), 95-93 (4/28/95), and 95-59 (3/27/95).
Based on the foregoing and the longstanding position of the Department, I do not find sufficient cause to allow for any adjustment to the sample computations. I will allow for an adjustment of the audit assessments to include a one-time credit for taxes paid by the Taxpayer's customers.
CONCLUSION
Based on this determination, the Department's auditor will contact the Taxpayer to determine the adjustment and to revise the Department's audits accordingly. Revised bills, with interest accrued to date, will be mailed to the Taxpayer once the adjustments have been made. No additional interest will accrue provided the revised assessments are paid within 30 days of the bill dates.
The Code of Virginia section and public documents cited are available on-line in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this matter, please contact ***** of the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5317184663.Q
Rulings of the Tax Commissioner