Tax Type
Retail Sales and Use Tax
Description
Audit sampling techniques; Audit penalty; Highway contractor
Topic
Collection of Delinquent Tax
Penalties and Interest
Date Issued
11-29-1989
November 29, 1989
Re: §58.1-1821 Application/ Sales & Use Tax
Dear*************
This will reply to your letter dated June 19, 1989 in which you seek correction of a sales and use tax assessment in the above referenced case.
FACTS
********* (the "Taxpayer") is involved in highway construction and asphalt paving. It protests the application of interest and penalty to the current field audit of its firm.In the audit, the sampling method was used. Records actually examined were for the period of January through August 1988 and the tax liability for the remainder of the audit period was extrapolated from such. Although the Taxpayer does not contest the application of the tax to the untaxed purchases of tangible personal property for the extrapolation period, it contends that the assessed penalty and interest should only apply to the sample period and not to such extrapolation period.
The Taxpayer requests a waiver of the total penalty and the portion of the interest for the extrapolation period. It reports that no penalty has been assessed on its prior audits and its past record demonstrates its continued effort to pay all applicable taxes.
This is a fourth generation audit of the Taxpayer. Its current compliance ratio for sales tax 97.28% , thus no penalty was applied to the sales tax deficiency. However, penalty was imposed on its use tax deficiency as the compliance ratio for such was 58.75%.
RULING
Sampling is an audit technique of significant value that is widely used in both the public and private sectors in all types of audits where a detailed audit would not prove beneficial either to the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit. The courts have held that a tax assessment issued by the proper assessing authorities is prima facie correct and that the burden of evidence is upon the taxpayer to prove otherwise.
Virginia Retail Sales and Use Tax Regulation §630-10-80(C)(2) provides that "[t]he application of interest to all audit deficiencies is mandatory...." (Emphasis added) Furthermore, Virginia Code §58.1-105 provides for the relief of taxes or interest only in cases of doubtful liability or collectibility.
As neither of the criteria contained in Virginia Code 58.1-105 has been met, and since the tax assessment upon which the interest is calculated is prima facie correct, I do not find basis for the abatement of any portion of the interest assessed in this case.
Additionally, while I recognize the Taxpayer's favorable record for reporting and payment of sales tax due during the audit period, I must also recognize its failure to report and remit payment of use tax on a large portion of its purchases. VR 630-10-80(c)(1) provides that:
-
- [g]enerally, absent indication of fraud, penalty will be waived on the first audit of all taxpayers. On a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances.
- [g]enerally, absent indication of fraud, penalty will be waived on the first audit of all taxpayers. On a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances.
However, as the result of legislation enacted by the 1989 General Assembly, a Tax Amnesty program will be conducted from February 1 to March 31, 1990. At that time, you will be able to receive a waiver of these penalties, provided that you are eligible for the amnesty program, complete an amnesty application, and pay in full the tax and interest assessed on all bills and non-filer periods that are due.
Further collection action on these penalties will be suspended pending the start of the amnesty program provided you complete the attached form and return it to this office within 15 days along with your payment of the total tax and interest due. As stated on the attached form, the suspension of collection activity by the department does not relieve you from the responsibility to formally apply for amnesty during the amnesty period. In addition, interest will continue to accrue on the unpaid penalties during the period collection is suspended.
Therefore, based upon all of the foregoing, I find no basis for a correction of the assessment, which is now due and payable in full.
If you have any questions regarding this matter, please contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner