Tax Type
Retail Sales and Use Tax
Description
Audit sampling
Topic
Collection of Delinquent Tax
Date Issued
03-29-1999
March 29, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****
This is in response to your letter seeking correction of the sales and use tax audit assessment issued to ***** (the "Taxpayer'). I apologize for the delay in responding to your letter. Copies of referenced sources are enclosed.
FACTS
The Taxpayer is a retailer of electrical products. An audit for the period of January 1995 through December 1997, resulted in the assessment of sales tax on untaxed sales and the assessment of use tax on untaxed purchases.
The Taxpayer takes exception to the sales tax assessed in the audit. The Taxpayer maintains that all of the untaxed sales to a particular contractor should be excluded from the audit since this customer had informed the Taxpayer that it would pay the use tax directly to the Virginia Department of Taxation.
A one month sample of sales was used in the audit. The audit was adjusted to allow credit for the tax paid by the contractor on the untaxed sales included in the sample. However, no credit was given to the remaining 35 periods of the audit, i.e., the sample projection.
DETERMINATION
Dealers' Responsibilities. For sales and use tax purposes, there is the presumption that sales or leases are subject to the tax. This presumption is set forth in Code of Virginia § 58.1-1823 which states:
-
- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sales, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt (from the retail sales and use tax).... (Emphasis and insert added).
- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sales, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt (from the retail sales and use tax).... (Emphasis and insert added).
Accordingly, in the absence of a legitimate exemption certificate, the Taxpayer is responsible for charging and collecting the sales tax on every taxable sales made to its customers, regardless of whether the customer prefers to pay the tax himself. In this case, the sales made to the contractor were not exempt sales, and no exemption certificate was presented by the contractor to cause the Taxpayer not to collect the sales tax on the sales at issue. Therefore, the Taxpayer was required by law to charge and collect the sales tax on the sales at issue.
Sampling. Using the sampling technique to examine sales provides a snapshot of the Taxpayer's compliance with its sales tax collection and reporting responsibilities. Generally, the types of errors found in a sample would be typical of the types of errors that could be found in the remaining periods of the audit. Of course, isolated errors may occur which are not typical of the taxpayer's operations. However, for an item to be removed from the audit sample, the taxpayer must establish that the transaction was an isolated event and not a normal part of its operations.
Although the sales at issue in the instant case may represent less than one percent of the Taxpayer's sales made during the sample month, no evidence has been presented that these types of transactions occurred only within the sample month and were not representative of the Taxpayer's operations during the other periods of the audit. Also, the fact that these transactions represent a small volume of sales when compared to overall sales for the sampled month does not demonstrate that the sales at issue were isolated. Rather, the information provided indicates that the transactions included in the sample projection are representative of a period which reflects taxable sales untaxed by the Taxpayer.
Conclusion. Based on the foregoing, I find no basis to allow an adjustment to the sample projection. Accordingly, the sales tax assessed in the audit is correct as issued. Under separate cover, an updated bill will be sent to the Taxpayer.
For the future, it is important to note that the Taxpayer is required to keep and preserve suitable records of all deductions and exemptions claimed on its sales and use tax returns, including exemption certificates and other types of documents to support claimed deductions. See Code of Virginia § 58.1-633 and 23 VAC 10-210-470.
If you have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16770R
Rulings of the Tax Commissioner