What happened when a Virginia rental business appealed a sales and use tax assessment issued because it had not filed its returns?

Subject

Administration: Returns - Non-filer sales and use tax assessment

Plain-English summary

A Virginia rental business that supplies decorations, props, and displays for weddings, parties, and other events to both in-state and out-of-state customers was assessed retail sales and use tax for the periods October 2018 through February 2019 because it had not timely filed its sales tax returns or remitted the tax due. The Taxpayer appealed, arguing that the owner's extenuating circumstances had prevented timely filing, and that some of the sales during the period were to out-of-state customers, meaning the tax actually owed was less than the Department's assessments. The Taxpayer submitted documentation to support that contention.

By the time the Tax Commissioner responded, the Taxpayer had filed the overdue returns and paid the tax due for the periods at issue. The Department's own records showed the assessments had already been cancelled and reversed once the returns and payments were received. As a result, the Commissioner found the appeal was unnecessary and that no further action was required. The ruling reiterates that, as a registered Virginia dealer, the Taxpayer is required to timely file sales tax returns and remit payment under Va. Code §§ 58.1-615 A and 58.1-616.

What this means for you

Businesses that fall behind on sales tax filings

If you are a registered Virginia dealer and miss a filing deadline, the Department can and will assess tax based on the information available to it -- which may overstate what you actually owe if, for example, some sales should not have been taxed (such as sales to out-of-state customers). Filing the missing returns and paying the tax due is often the most direct way to resolve a non-filer assessment, since it lets the Department recalculate and correct the liability based on your actual reported figures.

What an appeal accomplishes once you've filed and paid

Here, the Taxpayer's appeal letter and supporting documentation were essentially overtaken by events: once the actual returns and payments were submitted, the Department's system cancelled and reversed the original estimated or non-filer assessments. The Commissioner's ruling did not need to weigh the merits of the out-of-state sales argument because the underlying assessments no longer existed by the time of the determination.

Ongoing filing obligations remain even after a favorable resolution

Even though the assessments were reversed, the ruling pointedly reminds the Taxpayer of its ongoing statutory duties: file sales tax returns by the 20th day of the month following the reporting period under Va. Code § 58.1-615 A, and remit the tax due at the same time the return is filed under Va. Code § 58.1-616. A one-time cancellation of assessments does not relieve a dealer of these recurring obligations going forward.

Common questions

Q: Did the Taxpayer win its appeal on the merits of the out-of-state sales argument?
A: The ruling does not resolve that argument on the merits. Instead, it notes that the assessments had already been cancelled and reversed once the Taxpayer filed its returns and paid the tax due, so the appeal was unnecessary and no further Department action was required.

Q: Why was the Taxpayer assessed sales tax in the first place?
A: The Taxpayer, a rental business providing decorations, props, and displays for events, had not timely filed its sales tax returns or remitted payment for October 2018 through February 2019, prompting the Department to issue assessments for those periods.

Q: What was the Taxpayer's argument on appeal?
A: The Taxpayer argued that the owner's extenuating circumstances prevented timely filing, and that because some sales during the periods were made to customers located outside Virginia, the actual sales tax due was less than what the Department had assessed.

Q: What ultimately resolved the case?
A: The Taxpayer filed the outstanding sales and use tax returns and remitted the payments due. The Department's records showed this caused the original assessments to be cancelled and reversed, making the appeal moot.

Q: What ongoing obligations does the ruling emphasize for registered dealers?
A: The Commissioner reminded the Taxpayer that, as a registered dealer, it must timely file sales tax returns by the 20th day of the month following the month the sale becomes taxable (Va. Code § 58.1-615 A) and must remit the tax due at the time the return is filed (Va. Code § 58.1-616).

Q: Does this ruling mean the Department will always reverse a non-filer assessment once returns are filed?
A: The ruling shows that outcome on these specific facts -- the Department's own records confirmed the assessments were cancelled and reversed upon receipt of the returns and payments. It does not establish a guarantee for every case, since results depend on whether the filed returns and payments actually account for the tax due.

Citations and references

Statutes:

• Va. Code § 58.1-1821 (application for correction of assessment)
• Va. Code § 58.1-615 A (dealer's duty to timely file sales tax returns)
• Va. Code § 58.1-616 (dealer's duty to remit tax due with the return)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-194

Original ruling text

December 1, 2020

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 assessments issued for the periods October 2018 through February 2019. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer operates as a rental business of decorations, props and displays to both in-state and out-of-state customers for weddings, parties and other events. The Taxpayer was assessed sales tax for the periods at issue because the Taxpayer did not timely file its sales tax returns and remit the payments due. The Taxpayer is contesting the assessments, and maintains that the owner’s extenuating circumstances prevented the Taxpayer from timely filing the returns and remitting the sales tax for the periods. The Taxpayer maintains that some of the sales made during the period were to clients not located in Virginia, and as a result, the sales tax due for these periods is less than the assessments issued by the Department. The Taxpayer provides documentation in support of its contention that the assessments issued by the Department are erroneous.

DETERMINATION

It is my understanding that the Taxpayer has filed the returns and remitted the payments for the periods at issue. The Department’s records demonstrate that the assessments at issue were cancelled and reversed upon receipt of the sales and use tax returns and payments filed by the Taxpayer. Accordingly, the appeal filed by the Taxpayer is not necessary and no further action is required regarding this matter.

The Taxpayer is reminded that as a registered dealer in Virginia, it is required to timely file sales tax returns and remit payment of the tax to the Tax Commissioner. Specifically, Virginia Code § 58.1-615 A provides, in pertinent part, that “every dealer required to collect or pay the sales or use tax” must file a return “on or before the twentieth day of the month following the month in which the sales tax shall become effective.” Virginia Code § 58.1-616 provides, in pertinent part, that “At the time of transmitting the return required under § 58.1-615, the dealer shall remit to the Tax Commissioner the amount of tax due….”

The Code of Virginia sections cited 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 about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/2121P