Did Virginia decide whether an event venue's space rentals were taxable when the operator refused to provide rental records during audit?

Plain-English summary

The Commissioner did not decide whether the event venue's space rentals were taxable. The operator said customers rented space for weddings and events, planned their own events, and supplied their own food, beverages, linens, furniture, and décor. But it refused to give the auditor the rental records needed to verify those facts.

The Department therefore estimated tax from corporate-return gross sales and advertising information. Virginia law required the business to retain and produce records, and authorized an estimated assessment when it did not. A six-year period was permitted because the Department had cause to believe required returns had not been filed.

The assessments were properly issued on the available information. The operator nevertheless received one final opportunity: it had 45 days after audit staff contact to provide all requested records. The auditor could revise the assessment if warranted, and the taxpayer would then have 90 days after the review was finalized to appeal remaining issues.

What this means for you

Believing a transaction is nontaxable does not excuse withholding records from a Virginia audit. Without contracts, invoices, and transaction details, the Department may estimate liability and decline to consider the underlying taxability argument.

Common questions

Did the ruling hold that every event-space rental is taxable? No. It said the Department could not decide this venue's position without records.

Why was the assessment estimated? The taxpayer provided no rental records during audit.

Why did the audit cover six years? The cited statute permits six years when required returns were not filed.

What final opportunity was given? Forty-five days after auditor contact to provide the records, followed by a new 90-day appeal period after review.

Citations and references

• Va. Code §§ 58.1-102, 58.1-103, and 58.1-633 A; 23 VAC 10-210-470 — recordkeeping and inspection.
• Va. Code § 58.1-618 — estimated assessment based on available information.
• Va. Code § 58.1-634 — limitations period when returns were not filed.
• Va. Code §§ 58.1-602 and 58.1-603(4) — accommodations provisions raised by the taxpayer.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-28

Original ruling text

February 7, 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 period September 2012 through August 2018.

FACTS

The Taxpayer operates a venue that rents space to its customers for weddings, receptions, parties and special events. The auditor assessed the sales tax on the Taxpayer’s rentals of space to its customers. During the performance of the Department’s audit, the Taxpayer did not provide the requested records related to the rentals. The audit assessment is based on gross sales information from the Taxpayer’s 2016 and 2017 corporate income tax returns. Relying on Virginia Code § 58.1-603 4, the Taxpayer contends that its rental of space is not subject to the retail sales and use tax. Accordingly, the Taxpayer requests that the assessments be abated in full.

DETERMINATION

Virginia Code § 58.1-603 4 provides that the sales tax applies to “gross proceeds derived from the sale or charges for rooms, lodgings or accommodations furnished to transients as set out in the definition of "retail sale" in Virginia Code § 58.1-602.”

The Taxpayer maintains that it does not provide overnight accommodations to transients as provided in Virginia Code § 58.1-603 4. The Taxpayer further states that it only rents space to its clients and that its clients plan their own events and provide their own food, beverages, linens, furniture and décor.

It is my understanding that the Taxpayer refused to cooperate with the auditor’s request for records because the Taxpayer does not believe its rentals are taxable. However, the auditor assessed the tax based on the type of business engaged in by the Taxpayer and advertising information. In order to ascertain whether the tax is applicable to the rentals at issue, the auditor must be allowed to review the pertinent records. Until such records are provided, the Department cannot address or consider the Taxpayer’s position. The Taxpayer is required to provide records regarding its rentals of space in accordance with the following authorities.

The General Provisions in Chapter 1 of Virginia Code 58.1 govern all taxes administered by the Department of Taxation and provides in Virginia Code § 58.1-102 that:

It shall be the duty of every taxpayer to retain suitable records and documents substantiating all information contained on any return required by this subtitle 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.

Virginia Code § 58.1-103 further provides that “All records and documents required by this subtitle or by rule or regulation shall be available during regular business hours for inspection by the Tax Commissioner or his duly authorized agents.”

Chapter 6 of Virginia Code 58.1 specifically addresses the Virginia Retail Sales and Use Tax and requires in Virginia Code § 58.1-633 A that dealers “keep and preserve suitable records of the sales, leases, or purchases, as the case may be, taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner.” Title 23 of the Virginia Administrative Code 10-210-470 also provides that the taxpayer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”

Pursuant to the cited authorities, the Taxpayer is required to maintain records and to make such records available for review by the Department. In this instance, the Taxpayer did not provide any records for review during the Department’s audit. The assessment was properly issued to the Taxpayer in accordance with Virginia Code § 58.1-618, which authorizes the Department to estimate tax liability in instances when a taxpayer does not provide records for review.

The Tax Commissioner has previously addressed instances in which taxpayers failed to provide records for review by the Department and assessments were estimated based on the best available information. See, Public Document (P.D.) 18-83 (5/9/18), P.D. 16-75 (5/11/16) and P.D. 98-4 (1/14/98).

In addition, the auditor issued the assessment for a six-year period in accordance with Virginia Code § 58.1-634, which addresses the period of limitations and states that:

The taxes imposed by this chapter shall be assessed within three years from the date on which such taxes became due and payable. In the case of a false or fraudulent return with intent to evade payment of the taxes imposed by this chapter, or a failure to file a return, the taxes may be assessed, or a proceeding in court for the collection of such taxes may be begun without assessment, at any time within six years from such date. The Tax Commissioner shall not examine any person's records beyond the three-year period of limitations unless he has reasonable evidence of fraud, or reasonable cause to believe that such person was required by law to file a return and failed to do so . [Emphasis added.]

CONCLUSION

Based upon the information presented, the assessments were properly issued. Notwithstanding the foregoing, I am willing to grant the Taxpayer one final opportunity to provide documentation to the Department for review with respect to the audit period at issue. The Taxpayer will be contacted by the appropriate field audit staff to discuss the records and documentation the Taxpayer will be required to provide. The Taxpayer must provide all requested records and documentation to the audit staff within 45 days from the date of contact with the auditor. Once the review is completed by the auditor, revisions to the audit and the audit assessment will be made if warranted.

Further, the Taxpayer will have 90 days from the date the review is finalized to file an appeal with the Department for any contested issues. Should the Taxpayer fail to provide the records and documentation to the auditor within the allotted timeframe, the assessments will become immediately due and payable at that time, and the Taxpayer will have no further opportunity to submit an appeal in accordance with Virginia Code § 58.1-1821.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1949P

Related Documents

18-83

16-75

98-4