Tax Type
Retail Sales and Use Tax
Description
Warranty sales; Collection of tax; Penalties and Interest
Topic
Taxability of Persons and Transactions
Date Issued
08-12-1991
August 12, 1991
Re: §58.1-1821 Application: Sales and Use Tax
Dear**********************
This is in reply to your letter of May 25, 1990 seeking correction of a sales and use tax assessment for the period of July 1, 1986 through June 30, 1989.
FACTS
*********(the Taxpayer) is taking exception to several areas included in the recent sales and use tax audit. The Taxpayer's contentions are listed below.
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- The Taxpayer was assessed audit penalty as the result of tax collected on warranty sales which was not submitted to the department. The Taxpayer claims that the method of reporting warranties sales was consistent with the method used during the previous audit and is therefore requesting waiver of penalty.
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- The auditors failed to remove items from the extrapolation that were agreed during the review of the audit working papers, as well as various fixed asset purchases for which documentation was provided to the auditors.
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- The method used to report the sale of warranties to customers is consistent with the method used during the previous audit. It is also stated by the Taxpayer that the method of reporting currently in use was approved during the last audit and resulted in no liability for the previous audit period. The Taxpayer feels that if the current method of reporting the sale of warranties is incorrect, action taken by the department should be prospective and not retroactive for the past three years.
DETERMINATION
Miscellaneous Adjustments
It is my understanding that the information furnished by the Taxpayer was apparently never received by our auditors. Our auditors will contact you within the next 30 days to discuss any information you may have and make any adjustments that may be in order.
Warranty Sales
The method the Taxpayer uses to report the sales tax collected on taxable warranties has resulted in an underpayment of tax collected on warranties. The underpayment of the tax is the result of taking the beginning balance of the warranties payable account and netting it against the ending balance of the account for a given month, and computing the tax on the net difference. By using this method, the sales tax payable account is overstated for each month. The Taxpayer was charging the excess amount of sales tax to their "other Income" account, thus under-reporting the actual sales tax collected.
Va. Code §§58.1-603 and 58.1-605 clearly require that the 4 ½ % sales tax be computed on the dealer's gross taxable sales for the month. It is equally clear that the method employed by the Taxpayer in computing its warranty sales does not accomplish this as it consistently resulted in the underreporting of the monthly tax due.
Because the law is clear in this regard, I do not find basis for adjusting the tax assessed. However, I do find basis for the waiver of the penalty.
Sincerely,
W. H Forst
Tax Commissioner
Rulings of the Tax Commissioner