June 25, 2015
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 February 2010 through January 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates retail stores in Virginia that sell general merchandise. As a result of the Department's audit, an assessment was issued for untaxed sales, purchases and assets. The Taxpayer takes exception to the assessment and contends that certain asset purchases should not be included in the assessment because (i) the use tax was paid on the item; (ii) the purchase transaction was for exempt professional services; (iii) the asset was incorporated into real property; and (iv) the tax was assessed twice on the same transaction. In addition, the Taxpayer claims that separately stated labor charges were erroneously taxed and the auditor did not give credit in the audit for use tax remitted. Further, the Taxpayer claims that the extrapolation calculations are not correct.
The Taxpayer argues that it requested the auditor allow additional time to provide the documentation to resolve the contested issues; however, the auditor denied the Taxpayer's request and issued the assessment. The Taxpayer contends that there were miscommunications between the Taxpayer and the auditor with sending and receiving documentation via e-mail. For these reasons the Taxpayer requests the Department allow the Taxpayer additional time to provide the requested documentation for the auditor's review.
DETERMINATION
Pursuant to Va. Code § 58.1-205, "Any assessment of tax by the Department shall be deemed prima facie correct." The burden of proving that an assessment issued by the Department is incorrect rests with the taxpayer.
Virginia Code § 58.1-633 states that every dealer required to make a return and collect sales tax "shall keep and preserve suitable records of the sales, leases, or purchases ... taxable under this chapter, 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." When a dealer fails to maintain adequate records, the Department is authorized by Va. Code § 58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists.
The audit was conducted via mail and e-mail correspondence at the request of the Taxpayer. In conducting the audit, the auditor reviewed the Taxpayer's chart of accounts and selected certain accounts to be audited. The auditor requested copies of invoices for expense purchases, capital expenditures and documentation to support exempt sales for the selected accounts. It is my understanding that the auditor requested the documentation on multiple occasions.
After continued delays by the Taxpayer to provide the requested documentation, the auditor listed all the expense purchases for the selected accounts as exceptions. The auditor calculated the error factor and extrapolated the results using gross sales because the Taxpayer did not provide expense totals for the extrapolation. Further, it is my understanding that more than half of the requested invoices for capital expenditures were not provided. For the invoices provided, the auditor held taxable only those items in which the tax was not properly charged or self assessed. Any purchases in which the use tax was accrued were not included in the audit.
The Taxpayer has provided additional documentation for review. According to the auditor, more than one-half of the invoices had already been reviewed and the remaining invoices represented a sampling of invoices for a specific vendor in which the tax was properly charged. Because the vendor was not consistent in charging the tax, the auditor found no basis to remove the missing invoices from the audit exceptions.
The auditor listed the exceptions in the audit based on the records made available by the Taxpayer. The records for the transactions listed as taxable in the audit did not contain sufficient information to determine if the Taxpayer paid sales or use tax on the transactions or if the transactions were subject to the tax.
The Department granted the Taxpayer's request for a mail audit on the basis that this would facilitate the audit process. This has not occurred. The auditor has allowed ample time for the Taxpayer to provide additional documentation, which has extended the audit process for an additional year. However, the Taxpayer has failed to provide sufficient documentation during the audit process and in the appeal process to support its contentions. Therefore, I am not inclined to grant the Taxpayer's request for review of additional documentation. Because the Taxpayer has failed to meet the burden of proving the assessment is incorrect, I find that the tax was properly assessed in the audit and the assessment is upheld.
CONCLUSION
Based upon this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit payment to: Virginia Department of Taxation, 600 E. Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections 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, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5752052443.T