Could a live-performance business overturn Virginia use-tax audit items without records showing electronic delivery, out-of-state assets, or tax already paid?

Subject

Audit claims required timely supporting records

Plain-English summary

The taxpayer could not overturn the audit assessment without records substantiating its claims, but Virginia gave it 30 days to present newly found documents to the audit staff. The assessment would be revised only if the review supported the claimed corrections.

The live-performance business challenged tax on software it said was delivered electronically, a four-percent Virginia-use factor applied to assets it said never entered Virginia, and full taxation of an asset on which it said tax had already been paid on 60% of the value. It provided no supporting documents with the appeal.

Virginia treated the assessment as presumptively correct and placed the burden on the taxpayer. The ruling also quoted the statutory duty to keep suitable return records and preserve them for three years from the required return-filing date.

What this means for you

• Assertions about delivery method, asset location, or tax already paid need invoices, payment records, shipping records, or comparable proof.
• Virginia's three-year recordkeeping rule supports the Department's expectation that audit claims be documented.
• A remand for document review is not an exemption ruling or automatic reduction.
• Late-produced records may still be reviewed when the Department permits, but the taxpayer retains the burden of proof.

Citations and references

• Va. Code §§ 58.1-205 and 58.1-102.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 14-191

Original ruling text

December 29, 2014

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

Dear *:

This will reply to your letter in which seek correction of the retail sales and use tax audit assessment issued to * (the "Taxpayer") for the period of April 2007 through December 2010. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is in the business of putting on live performances nationally and internationally. The Taxpayer's administrative offices are located in Virginia, and most of the tangible personal property used in the performances is received in Maryland and shipped to the location of the live performance. In order to determine the Virginia use tax liability, the auditor allocated the proportion of Virginia performances to total performances in the United States and determined that four percent of the Taxpayer performances were in Virginia. The four percent factor was applied to all purchases of tangible personal property used in live performances, while all administrative supplies used at the Virginia administrative headquarters were taxed at 100 percent.

The Taxpayer takes exception to three areas in the audit findings: (1) software delivered to the Taxpayer electronically; (2) applying the four percent factor to fixed assets that never entered into Virginia; and (3) taxing a fixed asset at 100 percent when sales tax had already been paid on 60 percent of its value. The Taxpayer provides that it has been able to obtain additional documentation to substantiate the above exceptions and requests a review of this documentation. The Taxpayer has not provided any supporting documentation with its appeal.

DETERMINATION

Pursuant to Va. Code § 58.1-205, "Any assessment of tax by the Department shall be deemed prima facie correct." The burden of proving that an assessment issued by the Department is incorrect rests with the taxpayer. Virginia Code § 58.1-102 states:

It shall be the duty of every taxpayer to retain suitable records and documents substantiating all information contained in any return required by this statute and any such other pertinent records or documents as the Tax Commissioner may require by regulation. The records and documents shall be preserved for a period of three years from the required date for filing a return to which such records or documents pertain.

At the completion of the audit, the Taxpayer did not have sufficient documentation to support the claims in this appeal. Because the Taxpayer was unable to provide documentation, it failed to meet its burden of proving that the tax assessed in the audit was incorrect.

In light of the fact the Taxpayer now has additional documentation to present, the audit will be returned to the audit staff to review such documentation. The Taxpayer should provide the documentation to the audit staff within 30 days from the date of this letter. Following the completion of the document review, the audit assessment will be revised if warranted and an updated assessment will be issued. If there is a balance remaining, please remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15 th Floor, Richmond, Virginia 23219, Attn: *.

The Code of Virginia sections cited in this letter are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department's web site. If you have any questions concerning this determination, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-5699158795.T