Could a restaurant raise a new gratuities issue after the 90-day appeal period by calling it a reconsideration request?

Subject

Issues raised in initial appeal and requirements for reconsideration

Plain-English summary

A restaurant's original audit appeal challenged nonprofit sales and gift-card sales. Virginia removed the gift cards but kept the nonprofit sales because no exemption certificate was provided.

After that decision, the restaurant argued for the first time that gratuities had been included in gross sales. The new letter arrived well after the 90-day deadline measured from the assessment date.

Virginia held that the gratuities issue was untimely and did not qualify for reconsideration. Reconsideration could address misstated facts, changed law, misapplied policy, or genuinely new evidence concerning an original protest issue; it could not be used to add a separate issue that was available but omitted from the timely appeal.

What this means for you

• Raise every known audit issue within the original 90-day appeal period.
• Reconsideration is not a second general appeal.
• New evidence must relate to an issue already protested.
• Review sales records, tips, exemptions, and other adjustments before filing the first appeal.

Citations and references

• Va. Code § 58.1-1821.
• 23 VAC 10-20-165 F 1.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-106

Original ruling text

June 21, 2017

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

Dear *:

This is in response to your letter in which you seek additional adjustments to the retail sales and use tax assessments issued to * (the “Taxpayer”) for the period January 2012 through January 2015.

FACTS

The Taxpayer operates a restaurant. The Department's audit disclosed that the Taxpayer was making sales of food and beverages and collecting the retail sales tax but failing to report the tax to the Department. The Taxpayer, in its administrative appeal, contended that the audit erroneously included exempt gift card sales and sales to a group that the Taxpayer states is an exempt nonprofit organization. The Tax Commissioner responded to the Taxpayer's protest stating that because the Taxpayer could not provide an exemption certificate from the nonprofit group, the sales at issue would not be removed from the audit. The gift cards, however, were not taxable and the audit was adjusted to remove the erroneously taxed sales.

The Taxpayer has submitted an additional administrative protest for the same audit period stating that customer gratuities were included in the Taxpayer's monthly sales totals. The Taxpayer's MBAR records, profit and loss statements and federal income tax returns include the customer tips as part of gross sales totals. The Taxpayer seeks an additional revision of the Department's assessments to exclude the erroneously taxed gratuities.

DETERMINATION

Administrative Appeal

The Department issued assessments to the Taxpayer on September 10, 2015. The statute of limitations to appeal issues associated with the Department's assessment expired on December 9, 2015, (the 90 th day after the date of assessment). See Va. Code § 58.1-1821 (“Any person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of assessment apply for relief to the Tax Commissioner.”)

The Taxpayer initially submitted a timely appeal and those issues were addressed in a response by the Tax Commissioner dated August 3, 2016. The Taxpayer's recent letter appeals a gratuities issue that was not raised by the Taxpayer in its initial appeal. The Taxpayer's letter regarding the tax on gratuities was postmarked October 2, 2016, well after the expiration of the 90-day period for filing an appeal. Accordingly, the Taxpayer has failed to timely submit its protest of the supplemental issue within the 90-day limitations period.

Reconsideration

Title 23 of the Virginia Administrative Code (VAC) 10-20-165 F 1 permits taxpayers to request a reconsideration of a determination issued under Va. Code § 58.1-1821. Such requests, however, must meet one of the four following requirements:

The facts upon which the original determination is based are misstated by the Tax Commissioner or are inaccurate, and the determination would have a different result based on a correction of the Tax Commissioner's misstatement of the facts presented or a clarification of the original facts presented in the taxpayer's administrative appeal;

The law upon which the original determination is based has been changed by legislation, court decision or other authority effective for the tax period(s) at issue;

The policy upon which the original determination is based is misapplied, and the determination would have a different result based on the application of the proper policy; or

The taxpayer has discovered additional evidence or documentation that was not available to the taxpayer at the time the original administrative appeal was filed with the Department, and the additional evidence or documentation could produce a result different from the original determination.

In this instance, the Taxpayer does not meet any of the requirements provided in Title 23 VAC 10-20-165 F. With regard to Title 23 VAC 10-20-165 F 1 d, this section provides for a taxpayer to request a reconsideration if the taxpayer has discovered additional evidence or documentation relative to the original protest issue(s). This section does not allow for the presentation of an issue that was not previously raised by a taxpayer's original appeal. Accordingly, the Taxpayer's reconsideration request is denied.

CONCLUSION

Based on the foregoing, the Taxpayer's appeal of the gratuities issue is barred from the appeals process by the statute of limitations in Va. Code § 58.1-1821. Additionally, the Taxpayer's protest does not meet the reconsideration requirements listed in Title 23 VAC 10-20-165 F 1. The revised assessments issued by the Department are correct and should be paid within 30 days to avoid the accrual of additional interest.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1019.Q