Did a retailer's spreadsheets prove that sampled untaxed deductions were gift-certificate sales rather than taxable sales?

Plain-English summary

Virginia upheld the assessment because the retailer did not reliably connect its sampled deductions to the claimed gift-certificate sales. The assessment remained presumed correct under Va. Code § 58.1-205.

The auditor tested deductions for one month and projected disallowed untaxed sales across the audit period. The retailer said all sampled deductions represented gift-certificate sales.

Two initial spreadsheets lacked detailed descriptions and did not tie to the total deductions on the sample-period return. A third spreadsheet did not reconcile its total gross sales to the return and listed gift-certificate sales that differed from the return's total deductions.

Appeals staff tried several times to obtain an explanation, but the retailer did not respond. Without reliable reconciled documentation, the retailer did not meet its burden to prove the assessment wrong.

What this means for you

• Reconcile supporting schedules exactly to gross sales and deductions reported on the return.
• Identify each deduction by transaction type rather than using summary totals alone.
• Resolve discrepancies promptly during an appeal.
• A sampled assessment can be projected across the audit period when the sample is not successfully challenged.

Common questions

Q: Did Virginia decide a broad gift-certificate tax rule?
A: No. It decided that this retailer failed to substantiate the claimed deductions.

Q: Why were the spreadsheets rejected?
A: Their sales and deduction totals did not tie to the filed return, and they lacked sufficient detail.

Q: What was the result?
A: The assessment was upheld.

Citations and references

• Va. Code § 58.1-205.

Subject

Untaxed sales: exempt gift certificate sales;documentation to substantiate claim

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 12-216

Original ruling text

December 21, 2012

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

Dear *:

This reply is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request correction of the retail sales and use tax assessment issued for the period September 2008 through July 2011.

FACTS

The Taxpayer is a retailer. As a result of the Department's audit, the Taxpayer was assessed for untaxed sales. The Taxpayer contends the untaxed amounts represent exempt gift certificate sales and provides documentation to substantiate its claim.

DETERMINATION

Virginia Code § 58.1-205 provides that any assessment of a tax by the Department shall be deemed prima facie correct. The burden of proof lies with the Taxpayer to prove the assessment is incorrect.

The Taxpayer's deductions were tested for a one-month sample period. The Taxpayer was assessed for disallowed untaxed sales based on sample results, which were also used to calculate disallowed untaxed sales for the audit period.

The Taxpayer argues that it was incorrectly assessed as total deductions taken for the sample period were for exempt sales of gift certificates. Although the Taxpayer presents two spreadsheets to support its protest, the spreadsheets indicate no detailed description of deductions and do not tie to total deductions taken for the sample period.

As the result of a discussion with a member of the Appeals and Rulings staff, the Taxpayer provided a third spreadsheet during its appeal. However, total gross sales on the spreadsheet do not tie to total gross sales reported on the return for the sample period. Also, the spreadsheet indicates gift certificate sales of *, while total deductions taken on the return for the same period were ***.

It is my understanding that several attempts were made by my staff member to contact the Taxpayer regarding the discrepancies. As of this letter date, the Taxpayer has not responded. Based on the foregoing, the Taxpayer has failed to provide reliable documentation to support its protest. Therefore, in accordance with Va. Code § 58.1-205, I find no basis to adjust the assessment.

Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Please remit payment within 30 days from the date of the bill to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *, Post Office Box 27203, Richmond, Virginia 23261-7203.

The Code of Virginia section cited is available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's website. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5114648644.M