Tax Type
Retail Sales and Use Tax
Description
Audit sample techniques; Audit penalty
Topic
Accounting Periods and Methods
Collection of Delinquent Tax
Penalties and Interest
Date Issued
06-29-1988
June 29, 1988
Re: §58.1-1821 Application/Retail Sales and Use Tax
Dear***************
This will reply to your letter of March 28, 1988, seeking the correction of an assessment issued in the above referenced case for the period September 1984, through July 1987.
FACTS
***********("The Taxpayer") is a retailer of office products and business systems. This appeal stems from a third generation audit and the Taxpayer contests: 1) the error ratio. 2) the computation of the tax, and 3) the audit procedure.
DETERMINATION
The error ratio used in computing the tax was based upon the audit sample period. Sampling is an audit technique of significant value and is widely used in all types of audits where a detailed audit would not prove beneficial to either the auditor or the Taxpayer. The Taxpayer contests the error ratio that was derived from the audit sample.
The auditor used a one month period that was chosen by the Taxpayer's Tax Manager and included a review of 147,000 sales invoices. The error ratio was based upon taxable sales within the sample period on which no sales tax was remitted to the Commonwealth.
The audit techniques in this case were properly applied; the month used was representative of the Taxpayer's business particularly in view of the large number of invoices reviewed. We do agree that the particular invoice in question may not be representative of the sample period; therefore it will not be used in computing the error ratio. However, the tax due on this invoice remains payable.
The Taxpayer also proposes that the Department recompute the error ratio using consolidated figures from the Taxpayer's five registered dealers in the Commonwealth. §58.1-613 of the Code of Virginia requires that a separate certificate of registration be issued for each business location. Where taxes are reported separately, audits must similarly be separate for each location.
Based on the foregoing, the audit will be adjusted accordingly and we will issue a revised Notice of Assessment. If you have any further questions, please contact the Department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner