November 14, 2024
RE: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letters submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the periods May 2018 through April 2021.
FACTS
As a result of a 3rd generation audit, the Taxpayer was issued an estimated assessment on its assets and purchases after it failed to provide adequate records during the audit. The Taxpayer filed an application for correction contending that many of the purchases were exempt and that required documentation can be provided upon request.
DETERMINATION
Virginia Code § 58.1-102 provides:
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.”
More specifically, 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 (VAC) 10-210-470 also provides that, for sales and use tax purposes, a taxpayer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”
The Department has previously addressed instances in which dealers 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 (1/4/1998), P.D. 16-75 (5/11/2016), P.D. 18-83 (5/9/2018), P.D. 20-28 (2/7/2020), and P.D. 22-108 (6/9/2022).
In this instance, the Taxpayer failed to provide sufficient documentation in order to perform the audit. As a result, the auditor reviewed federal income tax return information to estimate untaxed purchases for an exceptions report. The proposed report was submitted to the Taxpayer for review and additional information was requested at that time. When the Taxpayer failed to respond, the audit was completed and an assessment was issued.
The estimated assessment was issued in accordance with Virginia Code § 58.1-618, which authorizes the Department to use the best information available to reconstruct a dealer’s sales or purchases to determine whether a tax liability exists. In its appeal, the Taxpayer offers to provide documentation if requested. During an audit, an exceptions list is provided to the dealer in order to allow such dealer to provide documentation to show which items should be removed from the list. The Taxpayer failed to avail itself of the opportunity to provide documentation while the audit was still in progress.
Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed prima facie correct. The burden is on the dealer to prove the assessment is erroneous. In addition, 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 was attributable to a taxpayer’s willful failure or refusal to provide the Department with necessary information as required by law.
Despite its failure to respond to the auditor’s request for records, the Taxpayer will be given one final opportunity to provide documentation for review. The Taxpayer will be contacted by the auditor within 30 days of the date of this letter to discuss the documentation that must be provided. The Taxpayer must make all of the requested documentation available to the auditor at a mutually agreed-upon time. The auditor will review the documentation and make adjustments, as appropriate, and issue a revised audit report. If the documentation is not provided within the allotted time frame stated above, the outstanding liability will become immediately due and payable.
In accordance with this decision, this application is being closed. At the conclusion of the auditor’s review, should issues remain, the Taxpayer may submit an application for correction within 90 days of the audit revision pursuant to Virginia Code § 58.1-1821 and Title 23 VAC 10-20-165.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR\4763.F