Tax Type
Retail Sales and Use Tax
Description
Deduction for returned goods
Topic
Returns/Payments/Records
Date Issued
07-06-1988
July 6, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear****************
This will reply to your letter of May 6, 1988, seeking the correction of assessments issued in the above referenced case for the period July 1985, through May 1987 and for the period January 1985, through June 1985.
FACTS
In connection with its auto parts business, ********* ("The Taxpayer") was assessed for failure to pay the proper amount of sales tax for the period July 1985, through May 1987. For this same period, the Taxpayer protests the audit sample period used by the Department. The Taxpayer also denies liability for the period January 1985, through June 1985.
DETERMINATION
The Taxpayer contests the assessment based upon the fact that Form ST-9A (Virginia retail sales and use tax worksheet) was not properly completed due to a misunderstanding in the filing instructions. When a customer would return an item, the Taxpayer in filling out the return, would erroneously take a deduction for returned goods from both gross sales and exempt sales or would deduct both the price of the goods and the tax paid. These errors were reflected on the ST-9 monthly sales and use tax return filed by the dealer.
Line 4 of Form ST-9A is for exempt sales only. The instructions state that the Taxpayer should "enter the total amount of exempt sales made during the period covered by the return." The instructions do not state anything about also entering the exempt sales anywhere else on the return or about deducting the amount of tax attributable to the sale.
Line 6a of Form ST-9A instructs the Taxpayer to enter "any part of the sales price of tangible personal property sold...and returned by a customer...on which you have not paid the tax to the State...resulting in a refund to the purchaser or a credit to his account...." The instructions for Form ST-9A also refer the Taxpayer to Virginia Retail Sales and Use Tax Regulation
§630-10-93, which clearly illustrate this procedure. The methods used by the Taxpayer to account for returned goods resulted in an underestimate of taxable sales.
Therefore, I find no basis for any adjustment of the audit on this issue
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 method used by the auditor.
The auditor used a three month period (not a two month period as the Taxpayer contends) which included the months of March 1985, July 1986, and December 1986. The Taxpayer agreed to use the month of March 1985, in the sample even though this month was outside the audit period for which she was the sole proprietor. If the audit sample was changed using only the months of July 1986, and December 1986, the error factor would be higher (10.8314660% instead of the 8.8185233% that was used) resulting in a higher assessment to the Taxpayer.
The audit techniques in this case were properly applied; there was a narrow range of error resulting in accuracy and fairness to the Taxpayer. The months chosen were reasonably spaced and are completely representative of the Taxpayer's business. When an audit sample is chosen in a manner which properly reflects the Taxpayer's business, a detailed audit is neither necessary nor required. The courts have held that a tax assessment by proper assessing authorities is prima facie correct and the burden is upon the Taxpayer to prove that the assessment is incorrect. The Taxpayer has not met this burden.
The Taxpayer also contests the assessment for the period January 1985, through June 1986, the period of time during which the business was owned by her husband. §58.1-105 of the Code of Virginia authorizes the Tax Commissioner to accept offers in compromise of taxes of doubtful liability or doubtful collectibility. The Department will accept **********as payment in full of this assessment. Please remit payment to the Department within thirty days of receipt of this letter.
The Department of Taxation has no formal hearing process, and this case has been thoroughly reviewed. However if you wish to meet, please contact the Tax Policy Division at (804) 367-8010 to arrange a meeting with me.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner