June 30, 2015
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 assessment issued for the period October 2010 through June 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates as a restaurant. The Taxpayer was assessed tax in the audit because the sales reported on its sales tax returns were less than the sales shown on the Taxpayer's income tax returns for the tax years 2011 and 2012. The Taxpayer contests the assessment and maintains that the assessment does not match its records. The Taxpayer states that only a few records were examined by the Department's auditor. The Taxpayer provides records for review with its appeal, and states in the appeal that it will be providing more records to the Department's auditor for review. The Taxpayer maintains that the assessment is incorrect.
DETERMINATION
Records
Virginia Code § 58.1-633 A states:
Every dealer required to make a return and pay or collect any tax under this chapter shall keep and preserve suitable records of the sales, leases, or purchases, as the case may be, 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.
Title 23 of the Virginia Administrative Code (VAC) 10-210-470 A provides further guidance regarding the record keeping requirement. It also provides examples of the types of records that taxpayers are required to maintain in order to be in compliance with Va. Code § 58.1-633.
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 determine whether a retail sales and use tax liability exists.
During the performance of the audit, the Taxpayer did not provide sales journals or register reports for the audit period as requested by the Department's auditor, stating to the Department's auditor that the records had not been saved. Rather, the Taxpayer provided end of week and end of day sales register reports for a five-week period that was outside of the audit period and close to the timeframe in which the audit was conducted. Based upon a review of these records, it was determined that the sales as reported on the Taxpayer's sales tax returns were less than the sales reported on the Taxpayer's income tax returns for the tax years 2011 and 2012. The sales tax assessment in the audit is based upon the difference between the amounts reported on the sales tax returns and the amounts reported on the income tax returns. The difference was also extrapolated over the periods October 2010 through December 2010 and January 2013 through June 2013.
In accordance with the cited authorities, I find that the assessment was properly made based upon the best information available at the time the audit was conducted. At the time the audit was being conducted, the Taxpayer did not provide the documents specifically required by the Department's auditor for the sales that occurred during the audit period. The documentation provided with the Taxpayer's appeal is for periods outside of the audit period and is insufficient to prove that the assessment is incorrect. Once the Department received the appeal, it granted the Taxpayer 60 days to provide the additional documentation mentioned in its appeal. To date this documentation has not been received.
This decision is consistent with prior determinations issued by the Department in which estimated assessments were upheld because the taxpayers' records were incomplete. In Public Documents 97-35 (1/27/97), 97-215 (5/12/97) and 98-87 (5/8/98), the taxpayers lacked complete records at the time the audits were conducted. As a result, the Department's auditors were unable to accurately determine the taxpayers' Virginia sales and used tax liability for the audit periods. Accordingly, the best information available at the time the audits were being conducted was used to estimate the taxpayer's sales and use tax liability.
The Taxpayer is required to maintain records and have those records available for inspection by the Department in accordance with Va. Code § 58.1-633 and Title 23 VAC 10-210-470. Based upon the information presented, the Taxpayer is not following the provisions set forth in these authorities. Going forward, the Taxpayer must retain proper records as required by the cited authorities.
Penalty
Title 23 VAC 10-210-2032 A 1 provides that penalty will not be assessed on first generation audits. Accordingly, the penalty assessed on the Taxpayer's first generation audit was assessed in error and will be abated in full.
A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. Please remit payment within 30 days from the date of the bill to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *****, Post Office Box 27203, Richmond, Virginia 23261-7203. No additional interest will accrue provided the outstanding assessment is paid within30 days of the date of the bill.
The Code of Virginia sections, regulation 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, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5724649599.P