November 18, 2024
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ***** :
This will reply 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 2016 through December 2018.
FACTS
The Taxpayer, a designer, wholesaler, seller, and contractor of residential and commercial solar power systems, was audited by the Department for the period at issue. The Department’s audit resulted in the assessment of sales and use tax for sales, purchases, and assets in which the auditor could not verify the taxable nature of the transactions. The Taxpayer filed an application for correction contending that tax assessed was excessive because it included sales made from out-of-state vendors and shipped to out-of-state customers. It asserts that it has gathered the required documentation to support its claim.
DETERMINATION
Virginia Code § 58.1-633 A states that every dealer required to file a retail sales and use tax return and pay or collect such tax must keep and preserve suitable records of the sales, leases, or purchases, as the case may be, subject to the retail sales and use tax. The dealer must also maintain such other books of account as may be necessary to determine the amount of tax due and “such other pertinent information as may be required by the Tax Commissioner.” This record keeping requirement is further explained in Title 23 of the Virginia Administrative Code (VAC) 10-210-470:
Every person who is liable for collection of sales tax or remittance of use tax or both is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability. Such records must include:
a) A daily record of all cash and credit sales, including sales under any type of financing or installment plan in use;
b) A record of the amount of all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase;
c) A record of all deductions and exemptions claimed in filing sales or use tax returns, including exemption and resale certificates, returned or repossessed goods, and bad debts;
d) A record of all tangible property used or consumed in the conduct of the business;
e) A true and complete inventory of the stock on hand and its value, taken at least once each year.
The Department reviews transactions based on the documentation presented for each transaction. This is consistent with longstanding and established policy that the retail sales and use tax is a transactional tax and that the determination as to the taxation of a specific transaction is based on the underlying documents that support the transaction. Thus, documentation must be provided to prove the tax was paid on each transaction with a vendor.
The Taxpayer had been a quarterly filer of sales tax returns prior to and into the early months of the audit period. Filing frequency was thereafter changed to monthly. The Taxpayer’s monthly returns remitted sales tax in some months but remitted no sales tax in others. The Taxpayer last reported sales in December 2017. It filed returns in 2018 but remitted no sales tax during that period.
In this case, the auditor requested purchase records, income tax returns, a general ledger, and invoices. The Taxpayer only submitted bank statements, some of which were missing or otherwise not provided. The Taxpayer indicated that it was able to provide copies of invoices, but the Department has no record of receiving them.
Pursuant to Virginia Code § 58.1-205, any assessment of tax by the Department is prima facie correct, meaning the burden of proof is upon the Taxpayer to show that the assessment is in error. 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.
Because it has asserted that it has documentation ready to be reviewed, the Taxpayer will be given one final opportunity to provide the necessary records and information to the Department’s audit staff. The Taxpayer should contact *****, Senior Auditor, at ***** or ***** within 30 days of the date of this letter to set up a mutually agreeable time in order to determine what documentation is required, and for review once it is provided. Once reviewed, the Department’s auditor may request additional information. A revised audit report will be issued and the assessment may be adjusted if warranted.
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/3247.B