Could a convenience store overturn a sales-tax assessment by disputing the audit sample without producing supporting records?

Plain-English summary

Virginia upheld the sales-tax assessment because the convenience-store operator supplied no evidence showing the audit sample or underreported-sales calculation was wrong. The auditor reviewed three months of returns, daily register receipts, and sales spreadsheets.

The taxpayer's spreadsheets did not reconcile to the gross sales reported on its monthly returns. The business argued that purchases would produce a more accurate liability and received extra time to submit records, but the documentation was unavailable.

Virginia assessments are presumed correct, and the taxpayer bears the burden of proving error. With no supporting evidence, the Department found no basis for an adjustment. It separately advised that the business could submit an offer in compromise based on doubtful collectibility within 30 days.

What this means for you

• Reconcile register totals, sales spreadsheets, and filed returns before an audit.
• A challenge to sampling needs records and a reproducible alternative calculation.
• Promising documents without producing them does not rebut the presumed-correct assessment.
• Ability-to-pay relief is separate from whether the tax calculation is correct.

Common questions

Q: Why did the three-month sample stand?
A: The taxpayer supplied no documentation proving the sample or error factor was wrong.

Q: Did the Department accept a purchases-based estimate?
A: No. The taxpayer did not produce the information needed to support that method.

Q: Was any payment option mentioned?
A: Yes. The ruling allowed 30 days to submit an offer in compromise based on doubtful collectibility.

Citations and references

• Va. Code §§ 58.1-205 and 58.1-105.

Subject

Tax on underreported sales

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-153

Original ruling text

August 5, 2013

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

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you seek correction of the retail sales and use tax assessment issued for the period April 2009 through March 2012 .

FACTS

The Taxpayer is a convenience store and gas station with two locations in Virginia. As a result of the Department's audit, an assessment was issued for the tax on underreported sales from one location. The audit of the second location resulted in a refund for overpayment of the sales tax. The Taxpayer contests the assessment issued for the tax on underreported sales, claiming that the sample base and error factor used to determine the audit liability are incorrect and the audit liability would be more accurate if based on purchases.

The Taxpayer states that it can produce the required information to support its claim. The Taxpayer requested and was granted additional time to provide documentation to support its claim; however, it is my understanding that the documentation is not available.

DETERMINATION

Audit Methodology

In this instance, the auditor applied a three month sample. The auditor reviewed sales tax returns, daily cash register receipts and daily and monthly sales spreadsheets of food and general items sold. The total gross sales on the spreadsheets prepared by the Taxpayer did not reconcile to the actual gross sales reported on the Taxpayer's monthly sales tax returns. Based on the records reviewed, the auditor concluded that the Taxpayer underreported its sales to the Department. While the Taxpayer disagrees with the audit liability, the Taxpayer has not provided any documentation or evidence to prove that the audit assessment is incorrect.

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. In this case, the Taxpayer has failed to provide documentation to support its protest. Therefore, in accordance with Va. Code § 58.1-205, I find no basis to adjust the assessment.

The Taxpayer may submit an offer in compromise to the Department based on doubtful collectibility pursuant to Va. Code § 58.1-105. Such an offer must be submitted using the enclosed Offer in Compromise Business Request for Settlement form, which is also available on-line at www.tax.virginia.gov in the Business Forms and Instructions section of the Department's website. The offer must be accompanied by a current financial information statement, also enclosed. If you have any questions about making an offer, you may contact a member of the Offer in Compromise Team at (804) 367-8045.

If an offer and the required financial information are not submitted within 30 days from the date of this letter, it will be assumed that the Taxpayer will not be filing an offer in compromise. Therefore, an updated bill, with interest accrued to date, will be mailed 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 to the: Virginia Department of Taxation, Attention: *, 600 E. Main Street, 23rd Floor, Richmond, Virginia, 23219. If you have any questions concerning payment of the assessment, you may contact at **.

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/1-5329141468.T