Could a registered consumer-use-tax taxpayer overturn an estimated assessment after filing no returns, producing no records, and submitting an incomplete appeal?

Subject

Estimated use-tax assessment was upheld against a nonfiler with no records

Plain-English summary

Virginia upheld an estimated consumer-use-tax assessment because the registered taxpayer filed no returns, provided no business records, and did not complete its administrative appeal on time. The auditor gave the taxpayer a records schedule, additional time, and five follow-up contacts. With no documentation produced, the Department estimated the liability under Va. Code § 58.1-618.

The taxpayer sent a protest letter within 90 days, but the letter included no documentation or legal authorities supporting its objections. Even after receiving additional time, it never filed a complete appeal. Virginia therefore treated the correction request as barred by the 90-day appeal limitation.

The taxpayer also argued that the assessment came nine days after a waiver expired. That did not invalidate it: because no returns had been filed, Va. Code § 58.1-634 allowed assessment up to six years after the tax became due. The assessment remained payable with accrued interest.

What this means for you

• Registration alone does not satisfy consumer-use-tax filing duties.
• When requested audit records are unavailable, Virginia can estimate liability from the information it has.
• A timely protest letter is not enough if it does not constitute a complete administrative appeal.
• Supporting documents and legal grounds must be supplied within the applicable appeal process.
• Failure to file a return can extend Virginia's assessment period even when a separate waiver has expired.

Common questions

Why was the assessment estimated?

The taxpayer filed no returns and produced no business records after repeated audit requests.

Was the July protest letter timely?

It arrived within 90 days, but it was incomplete and did not satisfy the statutory appeal requirement.

Why did the expired waiver not control?

The six-year assessment rule for unfiled returns independently made the June 2009 assessment timely.

What was the final result?

The appeal was denied and the estimated use-tax assessment was upheld as issued.

Citations and references

• Va. Code §§ 58.1-618, 58.1-1821, and 58.1-634.
• Virginia Public Document 06-140, section 4.2(D).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-109

Original ruling text

June 22, 2010

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This reply is in response to your letter submitted on behalf of the * (the "Taxpayer"), in which you seek correction of the use tax assessment issued for the period November 2005 through October 2008. I apologize for the delay in responding to your letter.

FACTS

An estimated assessment was issued by the auditor because the Taxpayer presented no record of its business activities during the audit. The Taxpayer protests the estimated assessment as incorrect, contending it does not correctly reflect the Taxpayer's business activities. The Taxpayer also contends that the assessment is invalid because it was issued after the Department's waiver had expired. The Taxpayer seeks abatement of the entire assessment.

DETERMINATION

Estimated Assessment

The Taxpayer is registered to report and remit consumer use tax but did not file any returns for the audit period. When the audit was initiated in October 2008, the Taxpayer was given a schedule of records needed to conduct the review. At the initial audit meeting, the auditor was informed by the Taxpayer that the requested records were not available for examination. The Taxpayer was granted additional time to gather the needed documentation. Subsequently, the auditor attempted to contact the Taxpayer on five separate occasions between December 2008 and February 2009 to secure the requested records. As no documentation was presented by the Taxpayer, an estimated use tax assessment was issued on June 29, 2009, pursuant to Va. Code § 58.1-618.

Administrative Appeal

Virginia Code § 58.1-1821 states, "Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of the assessment, apply for relief to the Tax Commissioner." Public Document (P.D. 06­140 (11/29/06) section 4.2 D states, "An incomplete appeal or notice of intent to appeal does not satisfy or extend the 90-day limitation period."

Pursuant to both Va. Code § 58.1-1821 and P.D. 06-140, the Taxpayer was required to file a complete administrative appeal no later than September 28, 2009. Although the Taxpayer's protest letter was received on July 9, 2009, it did not satisfy the requirement that a complete administrative appeal be filed with the Department within the 90-day period. The Taxpayer's appeal letter did not provide any documentation or authorities to support the grounds for protesting the assessment. The Taxpayer was provided additional time to present a full and complete administrative appeal; however, a complete appeal has not been filed to date. Therefore, the Taxpayer's application for correction is barred by the statute of limitations.

Waiver of Limitations Period for Assessment

Although the assessment date of June 29, 2009, was after the waiver expiration date of June 20, 2009, Virginia Code § 58.1-634 authorizes the Tax Commissioner to assess taxes up to six years from the date they become due if the Taxpayer has failed to file a return. In this case, the Taxpayer has filed no use tax returns and failed to present any documentation of its business activities during the audit period. Therefore, the use tax assessment for the period November 2005 through October 2008 was timely issued pursuant to Va. Code § 58.1-634.

CONCLUSION

Based on the above discussion, the Taxpayer's request for appeal is denied and the assessment is upheld as issued. An updated bill with interest accrued to date will be sent to the Taxpayer. The outstanding balance must be paid within 30 days from the date of the bill to avoid the accrual of additional interest and an additional 20% penalty on the tax due under the terms of Virginia's recent Amnesty.

The Code of Virginia sections and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-3873281033.M