June 8, 2016
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 assessment issued to ***** (the “Taxpayer”) for the audit period May 2007 through March 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates a veterinary clinic providing medical, surgical and boarding services. The Department's audit disclosed that the Taxpayer was making purchases for its own use and consumption without payment of the tax to suppliers or accrual and payment of the tax to the Department. The Taxpayer did not have adequate records to document the transaction. As a result, the auditor used the Taxpayer's available purchase invoices, bank statements and credit card statements to determine the audit liability.
The Taxpayer, while in agreement with a small portion of the Department's assessment, disagrees with the assessed balance represented by certain purchases used in the auditor's sample population. The Taxpayer states that the contested purchases are for nontaxable services and has provided affidavits to support its contention. The Taxpayer seeks to have the audit sample adjusted to remove the purchases at issue.
DETERMINATION
Virginia Code § 58.1-633 requires every dealer “to keep and preserve suitable records of the sales, leases, or purchases .... 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.” Emphasis added. This record keeping requirement is further explained in Title 23 of the Virginia Administrative Code 10-210-470.
Virginia Code § 58.1-103 directs the Tax Commissioner to inspect all records and documents associated with Virginia tax laws and regulations. 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.
In this instance, and in the absence of adequate records, the auditor reviewed the available purchase invoices, monthly credit card statements and business bank statements. The auditor also reviewed the Taxpayer's depreciation schedule and available purchase invoices for untaxed assets. The auditor's review resulted in the assessment of tax on certain purchases in which the Taxpayer was unable to provide detailed invoices showing that the tax was paid.
Affidavits
The Taxpayer's provision of affidavits in lieu of invoices proves useful only to the extent that it verifies the bank and credit card statements indicating purchases by the Taxpayer's business. It is essential that the requirements of the Virginia tax laws and regulations, as stated herein, are followed by Virginia dealers and consumers regarding proof that taxes have been paid to the Department. In such instances, invoices reflecting the cost of the property purchased or sold and the separate application of the tax are necessary elements of the purchase or sales transactions. In this case, the Taxpayer's affidavits do not provide proof that the tax has been paid on such purchases or that such purchases are not taxable.
Virginia Code § 58.1-205.1 provides that in any proceeding relating to the interpretation or enforcement of the laws of the Commonwealth, any assessment issued by the Department shall be prima facie correct and the burden is on the Taxpayer to prove otherwise. Based on the information presented, the Taxpayer has not met this burden and there is no basis to remove the remaining contested purchases from the sample and reduce the assessment.
With regard to the medical expenses portion of the affidavits, the Department's auditor has verified that the payments were made to valid medical facilities and has removed these from the audit assessment. Also, sufficient documentation has been provided to remove the Kane X-Ray and Think Pets transactions.
Assets
The Taxpayer has submitted documentation contending that its payment for certain assets includes applicable taxes. The Taxpayer has submitted a copy of a master lease agreement stating that the agreement and supporting invoices are proof that such taxes are included in the payment of the assets.
The agreement discusses taxes and fees and does include a provision that taxes and fees will be paid when due or for reimbursement. Each supporting invoice document specifically provides for a payment amount “plus applicable tax” for the equipment. The implication in these documents is that payments will be for a certain amount as stated in the invoice and that an applicable tax shall be added to that payment amount. However, the amounts noted in the Taxpayer's documentation do not include applicable taxes. Accordingly, I find no basis for an adjustment of the Department's assessment for the tax paid on the assets at issue.
CONCLUSION
The Department's audit has been revised with regard to the medical expenses, and the balance of the Department's assessment is correct. An updated bill, with interest accrued to date, will be sent to the Taxpayer shortly. No additional interest will accrue provided the updated bill is paid within 30 days from the date indicated on the bill statement.
The Code of Virginia and regulation sections 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 determination, please contact ***** of the Department's Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5878542987.Q