June 22, 2016
Re: § 58.1-1821 Application: Retail Sales and Use Tax and Withholding Tax
Dear *****:
This is in reply to your letter in which you seek correction of the Department's converted withholding and retail sales and use tax assessments issued to ***** (the “Taxpayer”). The assessments were initially issued to the four convenience stores owned by the Taxpayer. Withholding tax assessments were issued for the periods December 2011 through June 2013, June 2011 through December 2013, July 2012 through December 2013 and October 2011 through December 2013. Sales and use tax assessments were issued for the audit periods December 2011 through June 2013, July 2011 through January 2014, July 2012 through January 2014 and October 2011 through January 2014. I apologize for the delay in responding to your appeal.
FACTS
During the periods at issue, the Taxpayer owned four convenience stores, *****, *****, *****, and ***** (the “convenience stores”). As part of a joint activity between the Department and the Virginia Department of Alcoholic Beverage Control, the records of the convenience stores were seized. Those records were reviewed by the Department, audits were performed on the convenience stores and sales and use tax and withholding tax assessments were issued to each one. Additionally, the convenience stores have other outstanding tax liabilities.
Upon failure to collect the outstanding liabilities from the convenience stores, the Department converted the assessments to the Taxpayer in accordance with Va. Code § 58.1-1813. The Taxpayer is contesting the converted assessments. Additionally, the Taxpayer contends that the assessments issued to the convenience stores are incorrect. The Taxpayer asserts that the assessments were made by the Department without any records being reviewed. The Taxpayer further states that paying the full amount of the assessment will cause a financial burden.
DETERMINATION
Sales Tax Audits
The sales tax records reviewed were generated by the point of sales registers at the Taxpayer's convenience stores. The reports were taped to pages in notebooks that also contained lottery summaries and hand written detail for the day. The Taxpayer's record keeping was accurate. However, the information included in the records could not be reconciled to the sales tax returns filed with the Department for the convenience stores. The gross sales reported on the Taxpayer's sales tax returns did not include all of the sales that were made and the resulting tax that was collected during the sample periods reviewed. Before the audits were finalized, the Taxpayer was given the opportunity to provide additional documentation for the convenience stores sales records, but failed to do so.
Virginia Code § 58.1-625 B states that:
Notwithstanding any exemption from taxes which any dealer now or hereafter may enjoy under the Constitution or laws of this or any other state, or of the United States, such dealer shall collect such tax from the purchaser, consumer, or lessee and shall pay the same over to the Tax Commissioner as herein provided.
Virginia Code § 58.1-625 requires that dealers remit to the Department all of the sales tax collected on sales. In this instance, the audit revealed that the Taxpayer had not remitted to the Department all of the sales tax collected at the Taxpayer's convenience stores. The audit assessments reflect the discrepancy between the amount of tax collected by the Taxpayer's convenience stores and the amount of tax remitted to the Department.
Virginia Code § 58.1-205 1 states that “Any assessment of a tax by the Department shall be deemed prima facie correct.” The taxpayer has the burden of proving that an assessment is incorrect. In this instance, the Taxpayer has not provided any documentation to support his contention that the retail sales and use assessments issued to the convenience stores are incorrect. Accordingly, the assessments are correct as issued.
Withholding Tax Audits
Virginia Code § 58.1-461 requires employers to withhold taxes from employee wages for each payroll period. Based upon the documentation reviewed in the audit, the Taxpayer's convenience stores paid the employees in cash. The payroll records were kept on daily sheets that included the name of the employee and the amount of the payment. A review of the Department's withholding records for the convenience stores reveals that W-2s were not filed by the convenience stores. The Taxpayer has not provided any documentation to support its contention that the withholding assessments issued to the convenience stores are incorrect. As required by Va. Code § 58.1-205, the Taxpayer has not met its burden of proving that the withholding assessments are incorrect. Accordingly, the assessments are correct as issued.
Converted Assessment
Virginia Code § 58.1-1813 A states that:
Any corporate, partnership or limited liability officer who willfully fails to pay, collect or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected.
Virginia Code § 58.1-1813 B provides that:
The term “corporate, partnership or limited liability officer” as used in this section means an officer or employee of a corporation, or a member, manager or employee of a partnership or limited liability company, who as such officer, employee, member or manager is under a duty to perform on behalf of the corporation, partnership or limited liability company the act in respect of which the violation occurs and who (1) had knowledge of the failure or attempt as set forth herein and (2) had authority to prevent such failure or attempt.
In this instance, the Taxpayer was the owner of the convenience stores during the tax years at issue. The Taxpayer has not presented any evidence demonstrating that someone other than the Taxpayer is a responsible officer under a duty to perform on behalf of the convenience stores. The Taxpayer has further not presented evidence demonstrating that someone other than the Taxpayer is responsible for filing returns and remitting the sales and withholding taxes to the Department. A power of attorney on file with the Department indicates that the Taxpayer is the owner of the convenience stores at issue. In accordance with Va. Code § 58.1-1813, the Taxpayer is deemed a responsible officer of the convenience stores who did not account for and pay over the taxes as required by statute. As such, the converted assessments are correct as issued.
Public Document (P.D.) 95-74 (4/7/95) and P.D. 10-133 (7/12/10) support the determination above. In P.D. 95-74, the taxpayer was the sole owner of the business at issue. The taxpayer had authority to sign checks and had final approval in making day to day decisions for the business. In accordance with Va. Code § 58.1-1813, it was determined that the taxpayer was a responsible officer of the business and that the outstanding tax assessments of the business were properly converted to the taxpayer.
In P.D. 10-133 (7/12/10), the taxpayer was the president and owner of the corporation. The taxpayer contested a converted assessment, stating that she did not have a specific duty to prepare or file the corporation's returns or to remit payment with such returns to the Department. The corporation's federal income tax return indicated that the taxpayer owned 100% of the voting stock and was the president of the corporation. It was found that the taxpayer was in a position to prevent the corporation from failing to pay the tax liability. It was also determined that the taxpayer had presented no evidence to establish that someone else was responsible for filing the returns and paying the tax at issue. In accordance with Va. Code § 58.1-1813, it was found that the taxpayer was a responsible officer of the corporation and that the converted assessment was correct as issued.
Offer In Compromise
The Taxpayer indicates that paying the full amount of the assessment will cause a financial burden. As such, the Taxpayer may wish to request an offer in compromise based on doubtful collectibility. The Taxpayer must present evidence of doubtful collectibility to support a claim of financial hardship.
If the Taxpayer wishes to pursue a settlement based on doubtful collectibility, please complete and return the enclosed Offer in Compromise Business Request For Settlement and Financial Information Statement For Businesses forms. These forms will allow the Department to review and analyze the Taxpayer's financial situation. Upon completion of the Department's review, a response will be issued based upon the information provided. The completed forms should be sent to: Tax Commissioner, Virginia Department of Taxation, Attn: CICT, P.O. Box 2475, Richmond, VA 23218-2475. You may also fax the forms to (804) 786-2645. If the Department does not receive the completed forms within 30 days of the date of this letter, it will be presumed that the Taxpayer will not submit an offer in compromise based upon doubtful collectibility.
CONCLUSION
On the fax cover sheet used by the Taxpayer to submit the appeal, the Taxpayer states that Z-reports and 941 tax reports filed with the Internal Revenue Service can be provided for review. Accordingly, I will allow the Taxpayer 30 days from the date of this letter to provide such documentation. However, only documentation for the 2011 through 2013 tax years will be reviewed as it relates to the assessments at issue. Such documentation should be sent to: Virginia Department of Taxation, Appeals and Rulings Division, P. O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****. Once the review of this documentation is completed, revisions will be made to the assessments as warranted. Additionally, any revisions will be considered by the Department in reviewing the Taxpayer's offer in compromise if received by the Department within the allotted timeframe.
Once the aforementioned documentation is received and reviewed, an updated 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. If the documentation is not received within the allotted timeframe, the outstanding assessment will become immediately due and payable. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections and public documents 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/1-5752052478P