December 16, 2024
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 August 2018 through July 2021.
FACTS
The Taxpayer, a dual role contractor that sells and installs kitchen and bathrooms, was audited for the period at issue. The auditor requested documentation in order to verify the Taxpayer’s compliance with Virginia sales and use tax statutes. When sufficient documentation was not provided, the audit was finalized, and an assessment was issued based on the limited records available. The Taxpayer filed an application for correction contending it has additional documentation that was not considered during the audit that would significantly impact the assessment amount.
DETERMINATION
Virginia Code § 58.1-633 sets out statutory recordkeeping requirements of dealers and provides that:
Every dealer required to make a return and pay or collect any tax under this chapter shall 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.
The statute is interpreted by Title 23 of the Virginia Administrative Code (VAC) 10-210-470, which specifically indicates the type of records that must be maintained for sales and use tax purposes. The auditor requested general ledger detail reports and invoices and when the Taxpayer failed to provide adequate documentation, the auditor used Form 1120 tax returns to create financial statements for sales and purchase bases. After no additional records were provided, the audit was subsequently closed.
When a dealer fails to maintain adequate records, the Department is authorized by Virginia Code § 58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists. Pursuant to Virginia Code § 58.1-205, any assessment of tax by the Department is prima facie correct, placing the burden of proof upon a taxpayer to show that the assessment is in error. Because the Taxpayer failed to present documentation to support its claim, the auditor used the best information available to estimate the audit liability.
The Taxpayer claims that the requested records are now in order and available for review. Accordingly, the audit will be returned to the appropriate field audit staff who will contact the Taxpayer to review the records that were not available and other documentation as may be requested by the auditor. After the review is completed, the Department will issue a revised audit report and adjust the assessment, as necessary.
If the Taxpayer fails to timely provide the requested documentation, the assessment will be upheld. Further, interest on the unpaid balance will continue to accrue until the balance is paid.
The Code of Virginia sections and regulation cited are available online at law.lis.virginia.gov. 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/4702.F