August 9, 2023
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 January 2013 through December 2018. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer, a moving business, was assessed use tax on purchases for which it could not provide documentation that sales tax had been paid to vendors or that the Taxpayer had accrued and remitted the use tax. After several attempts to obtain satisfactory records, the auditor issued the assessment based on the records available. The Taxpayer appeals, contending that the assessment is overstated and requests that it be reduced to its estimate of 10-15% of gross sales.
DETERMINATION
The General Provisions in Chapter 1 of Title 58.1 of the Virginia Code govern all taxes administered by the Department of Taxation and provide the following in Virginia Code § 58.1-102:
It shall be the duty of every taxpayer to retain suitable records and documents substantiating all information contained on any return required by this subtitle and any such other pertinent records or documents as the Tax Commissioner may require by regulation. The records and documents shall be preserved for a period of three years from the required date for filing a return to which such records or documents pertain.
Virginia Code § 58.1-103 further provides that, “All records and documents required by this subtitle or by rule or regulation shall be available during regular business hours for inspection by the Tax Commissioner or his duly authorized agents.”
Chapter 6 of Title 58.1 of the Virginia Code specifically addresses the Virginia Retail Sales and Use Tax and requires in Virginia Code § 58.1-633 A requires that dealers “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 10-210-470 also provides that the taxpayer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”
In this instance, the Taxpayer provided incomplete and undocumented records of its business activities. As a result, the auditor repeatedly requested financial statements and other documentation from the Taxpayer. However, the Taxpayer failed to respond to the auditor’s requests for information, often citing the need for additional time to compile the information. The auditor was able to obtain a fixed asset list and a partial general ledger report from 2017. This documentation was insufficient to support the Taxpayer’s claims that taxes had been paid.
Pursuant to Virginia Code § 58.1-618, the Department is authorized to use the best information available to determine whether a tax liability exists in instances where the taxpayer does not provide adequate records for review during the Department’s audit. The Taxpayer has provided a list of purchases showing amounts paid for sales and use tax but has not provided the underlying supporting documentation. Based on the Taxpayer’s Virginia corporate income tax returns the assessment was properly issued to the Taxpayer in accordance with Virginia Code § 58.1-618.
The Tax Commissioner has previously addressed instances in which taxpayers failed to provide records for review by the Department and assessments were estimated based on the best available information. See, Public Document (P.D.) 98-4 (1/14/1998), P.D. 16-75 (5/11/2016), P.D. 18-83 (5/9/2018), and P.D. 20-28 (2/7/2020).
CONCLUSION
Virginia Code § 58.1-205 1 deems any tax assessment issued by the Department as prima facie correct. This means that the burden of proof is upon the Taxpayer to prove that the assessment is incorrect. The Taxpayer has not met this burden and, therefore, the tax liability assessed in the audit is upheld. Further, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment is attributable to the taxpayer’s willful failure or refusal to provide the Department with necessary information as required by law.
The Code of Virginia sections, regulation 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 response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at (804) *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3694.F