May 25, 2021
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 November 2014 through June 2015. I apologize for the delay in responding to your appeal. I do note that the assessment has been paid in full.
FACTS
The Taxpayer is a hotel management firm that provides daily management of property in a Virginia locality. As a result of this Department’s audit, the Taxpayer was assessed use tax on various untaxed purchases. The Taxpayer contends the length of time taken to close the audit, and the sample period utilized in developing the audit liability resulted in an unreasonable assessment. In addition to contesting the audit sample period, the Taxpayer requests the abatement of the resulting interest.
DETERMINATION
Sampling
Sampling is an audit technique of significant value that is widely used across both the private and public sectors in instances where a detailed audit would not prove beneficial to either the auditor or client. When sampling techniques are properly applied, the final results are usually within a narrow percentage range of the amounts 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. Once the error factor is determined, the factor is projected over the entire audit period. The purpose of the projection is to account for likely similar transactions on which Virginia tax has not been paid. Likewise, this same methodology is used when considering transactions on which Virginia tax has been overpaid. Every effort is made to select objectively the sample periods that are representative of the period being audited.
In this instance, the audit period was limited as the new hotel had not been in operation for a full calendar year. The Taxpayer and auditor agreed on using April 2015 as a representative sample of the months the property had been in operation. The Taxpayer argues the sample is unreasonable. However, the Taxpayer was informed of the sample period at the onset of audit and no concerns were raised regarding whether it was representative of the entire audit period. While the Taxpayer claims the sample month resulted in an unreasonable assessment, the Taxpayer has not provided any documentation to invalidate the sample methodology or indicate the assessment is otherwise erroneous.
Interest Abatement
The Taxpayer contends the length of time taken to complete the audit was unreasonable and, therefore, the interest should not be applied. However, the Taxpayer’s difficulty in gathering the necessary documents from their management firm resulted in the delays in the audit. Additionally, Virginia Code § 58.1-1812 mandates the application of interest to any tax assessment. Interest is not assessed as a penalty for noncompliance with the tax laws. Rather, it represents a fee for the use of money over a period of time. In this instance, the Taxpayer had the use of the money that was properly due the Commonwealth.
CONCLUSION
Pursuant to Virginia Code § 58.1-205 1, an assessment issued by the Department is deemed prima facie correct. The burden of proof is upon the Taxpayer to establish that an assessment is erroneous. The Taxpayer has not met that burden in this case. Therefore, the assessment is upheld. The Taxpayer has paid the assessment in full, therefore, no further action is required regarding the bill in question.
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/1614.A