January 10, 2025
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 February 2021 through January 2024.
FACTS
An audit was conducted on the Taxpayer, a Virginia dealer, for the period at issue, resulting in an assessment for untaxed sales, general expense purchases, and fixed asset purchases. The Taxpayer filed an application for correction contending that the assessment was based on an estimate and not actual sales.
DETERMINATION
The general provisions in Chapter 1 of Title 58.1 of the Code of Virginia govern all taxes administered by the Department. Virginia Code § 58.1-102 provides that “[i]t 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, “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 Code of Virginia specifically addresses the records requirements for the Virginia retail sales and use tax. Under Virginia Code § 58.1-633 A, dealers are required to “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 a dealer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”
The purpose of a sales and use tax audit is for the Department to determine a dealer’s sales and use tax compliance. As provided in the aforementioned authorities, the Taxpayer is required to maintain proper records and to provide them for inspection by the Department, such that the Taxpayer’s sales and use tax compliance can be determined.
In this case, the Taxpayer only provided several months of sales summaries, which the auditor could not reconcile to filed sales tax returns. The auditor asked for additional information to justify sales return figures, but none were provided. An estimated assessment was issued in accordance with Virginia Code § 58.1-618, which provides “[i]f any dealer fails to make any such return or refuses to permit an examination of his books, records, or papers, or to appear and answer questions within the scope of such investigation, the Tax Commissioner is hereby authorized to make the assessment based upon such information as may be available to him and to issue a memorandum of lien under Virginia Code § 58.1-1805 for the collection of any such taxes and penalties so found to be due. The assessment so made shall be deemed prima facie correct.”
After the application for correction was filed, the Department made multiple attempts to communicate with the Taxpayer in order to obtain documents to more accurately calculate the outstanding liability. Further, the Taxpayer missed two deadlines for the submission of substantiating documentation.
Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed to be prima facie correct and that the burden is on the taxpayer to prove the assessment is erroneous or incorrect. Without the provision of sufficient records, the Taxpayer has not met the burden of proof requirement. Furthermore, 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 erroneous assessment is attributable to the taxpayers’ willful failure or refusal to provide the Department with necessary information as required by law.
Based on this determination, the assessment is deemed correct. A revised bill, with interest accrued to date will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill.
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 and Legislative Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4953.Z