Tax Type
Retail Sales and Use Tax
Description
Audit sample techniques; Sales of agricultural commodities
Topic
Collection of Delinquent Tax
Date Issued
08-16-1991
August 16, 1991
Re: §58.1-1821 Application: Sales and Use Tax
Dear*****************
This will reply to your letter of February 12, 1991 in which you are seeking correction of sales and use tax assessments for****************(the "Taxpayer").
FACTS
The Taxpayer is in the business of making retail sales of agricultural commodities and other tangible personal property. The Taxpayer operates six retail outlets which were audited for the period of August, 1987 through July, 1990. Due to the extensive nature of the Taxpayer's operation, and the volume of sales and purchases involved, a sample was used to project the audit liability. The Taxpayer is contesting the sample used, stating that they feel a sample to project a 36 month period is an "unduly harsh method of calculating taxes due." The Taxpayer also feels that due to the seasonal nature of the industry, a sample is an invalid auditing method.
DETERMINATION
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 prime facie correct and that the burden of evidence is upon the taxpayer to prove otherwise. Please see enclosed opinion from the office of the Attorney General dated January 3, 1975 supporting the department's use of the sample technique.
Before requiring that a detailed audit be conducted or a sample period be extended, the taxpayer must show that the existing sample is not a truly representative sample period. In the case at hand, the Taxpayer has not shown that the sample used by the auditor was invalid or that the sample overstated its tax liability. In addition, the auditor exhibited great care in selecting a sample period that was fair to both the Taxpayer and the department. By utilizing a representative period, the sample should in fact take into account the seasonal nature of the business.
Therefore, based upon all of the foregoing, I find no basis for correction of the assessments, which are now due and payable in full. However, I will withhold collection for an additional 30 days to allow you time to present any additional information that may be pertinent to the acceptance of an offer in compromise under Va. Code §58.1-105, based upon seasonal transactions, nonrecurring or unique transactions, etc.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner