Tax Type
Retail Sales and Use Tax
Description
Consumer use tax; Sales tax was not paid to the vendor at the time of purchase
Topic
Accounting Periods and Methods
Records/Returns/Payments
Reports
Date Issued
05-10-2013
May 10, 2013
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"), for the period March 2005 through February 2011. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a contractor providing drilling services for commercial and residential water wells and geothermal systems. In addition, the Taxpayer installs pump and filtration systems. The Taxpayer was assessed consumer use tax in the audit in instances where the Virginia sales tax was not paid to the vendor at the time of purchase. The purchases included equipment, pipe, materials, tools and office supplies used in the Taxpayer's drilling operation. The Taxpayer claims that the sample is not representative of the audit period because the majority of the purchase exceptions relate to a new line of business activity that required out-of-state purchases. In addition, the Taxpayer provides additional documentation that the sales tax was paid on two asset purchases held in the audit. Lastly, the Taxpayer provides documentation regarding the purchases of three well drilling vehicles held in the audit that qualify for exemption from the tax.
DETERMINATION
Sample - Expense Purchases
Sampling is an audit technique of significant value that is widely used in both the public and private sectors for all types of audits where a detailed audit would not prove beneficial to the auditor or the client. When sampling techniques are properly applied, the final results are usually within a narrow percentage range of the actual amount that would have been determined by a detailed audit. The purpose of the audit sample is to determine a factor for errors within a representative selected period. The purpose of the projection is to account for likely similar transactions on which Virginia tax has not been paid.
In this instance, the Taxpayer's asset and purchase records were audited by the Department. A detailed audit was performed on the assets, and the purchases were audited based upon a one year sample. Because the Taxpayer started a new business activity during the audit period, the auditor agreed to detail purchases of pipe from a large vendor. The remaining expensed purchases related to the new business activity remained in the sample because the auditor found these purchases to be normal recurring purchases. In determining the extrapolated purchase measure, the auditor used sales in the extrapolation of the error factor because the Taxpayer failed to provide the purchase information requested during the audit.
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.
Notwithstanding the Taxpayer's general contention, the Taxpayer has failed to prove that the sampling methodology is flawed or unrepresentative of the audit period. The auditor's one year sample period meets longstanding Department audit guidelines. Additionally, the auditor's detail audit of purchases from one large vendor allowed an exception for certain purchases related to the new business activity of the Taxpayer. Therefore, I find the sampling methodology was properly applied.
Asset Purchases
A review of the asset exceptions shows that line items 10, 11 and 12 qualify for exemption from the retail sales and use tax. Pursuant to Public Document 12-28 (3/19/12), these items will be removed from the audit.
In addition, the Taxpayer presents documentation that the sales tax was paid on line items 3 and 4. Based on this information, these items will be removed from the audit.
CONCLUSION
Based on the foregoing, the audit assessment will be revised. A revised bill, with interest accrued to date, will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill.
The Taxpayer should remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia section and public document cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions about this determination, please 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/1-5091011699.T
Rulings of the Tax Commissioner