If a taxpayer appeals a sales/use tax audit by offering to prove its customers already paid consumer use tax, what happens to the appeal?

Plain-English summary

A Virginia retailer under sales and use tax audit appealed to the Tax Commissioner. The main issue was whether the Taxpayer could show, through documentation from its own customers, that those customers had already paid consumer use tax directly on sales where the Taxpayer had not collected sales tax at the time of the transaction. If a customer already self-assessed and paid the use tax, the Department shouldn't also assess the Taxpayer for the same tax on that same sale.

The Tax Commissioner referred the matter back to the auditor, who agreed to review this consumer use tax information for the specific Virginia customers named in the appeal letter, provided it was submitted in Excel format. The Taxpayer was told to coordinate directly with the auditor on the details of how the data should be formatted and transmitted, after which the auditor would review it and make any appropriate adjustments to the audit.

Because the matter was being handed back to the auditor for this review, the Tax Commissioner closed the appeal at this stage rather than ruling on the merits. The ruling preserves the Taxpayer's right to come back: if, after the auditor's revised assessment, any issues remain unresolved, the Taxpayer may file a new appeal within 90 days of the audit revision, under Va. Code § 58.1-1821 and 23 VAC 10-20-165.

What this means for you

If you're appealing an audit assessment on untaxed sales

When a sale wasn't taxed at checkout, the Department may assess use tax against the seller unless it can be shown the buyer already paid consumer use tax on that same purchase. This ruling illustrates that the Department's audit staff -- not the Tax Commissioner's appeals process -- is often the right venue to actually review that customer-by-customer proof. Work with your auditor on the acceptable format (here, Excel) for submitting the supporting documentation, since that is where the adjustments will actually be made.

If your appeal is "closed" without a decision on the merits

A closure like this one is not necessarily a loss. It can simply mean the case is being routed to the audit staff for further fact-specific review. Keep track of the 90-day window: if the revised audit still leaves you with unresolved issues, you retain the right to appeal again under Va. Code § 58.1-1821 and 23 VAC 10-20-165.

Common questions

Why would a seller not owe use tax on a sale it didn't collect tax on?
Because use tax is meant to apply once. If the buyer already self-assessed and paid Virginia consumer use tax directly on that purchase, having the Department also collect it from the seller would tax the same transaction twice. This ruling arose because the Taxpayer wanted the chance to prove its customers had already paid.

What format did the auditor want the customer documentation in?
The auditor asked that the consumer use tax information for the relevant Virginia customers be provided in Excel format, with the Taxpayer working out further formatting details directly with the auditor.

What happens if I still disagree after the auditor reviews the new information?
Under Va. Code § 58.1-1821 and 23 VAC 10-20-165, the Taxpayer may submit a new appeal within 90 days of the audit revision if issues remain unresolved.

Citations and references

• Va. Code § 58.1-1821 (appeals of sales and use tax assessments)
• Title 23 of the Virginia Administrative Code § 10-20-165 (implementing regulation for assessment appeals)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-155

Original ruling text

September 1, 2020

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

Dear *:

The Department previously acknowledged receipt of your appeal submitted on behalf of * (the “Taxpayer”). The primary issue presented upon appeal is the provision of documentation from the Taxpayer’s customers to verify payment of consumer use tax on sales made by the Taxpayer for which sales tax was not collected at the time of the transaction.

The case was referred to the auditor for comments, and the auditor expressed a willingness to review the consumer use tax information for the Virginia customers you mentioned in the appeal letter. The auditor suggested, however, that the information be provided in an Excel format. The Taxpayer is instructed to work further with the auditor concerning the details of the format used to transmit the information. The auditor will then review the information and make adjustments, as appropriate.

At this time the appeal matter is being closed. At the conclusion of the auditor’s review, should any issues remain, the Taxpayer may submit an appeal within 90 days of the audit revision in accordance with Virginia Code § 58.1-1821 and Title 23 of the Virginia Administrative Code 10-20-165.

If you have any questions regarding the review of documentation, you may contact the auditor, *, at . If you have any questions about the appeals process, please contact in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3294.M