What does Virginia Ruling of the Tax Commissioner P.D. 21-17 conclude about an appeal of a sales tax audit assessment filed after the 90-day deadline, where the taxpayer also asked for a conference to submit more records?

Subject

Administration: Appeal - Out of Statute; Audit - Requests for Records.

Plain-English summary

A Virginia nail salon that also sells retail merchandise was audited for retail sales and use tax for the period of February 2016 through June 2019. The Department's audit found untaxed purchases and issued an assessment. The Taxpayer eventually sent the Department a letter seeking clarification of the audit results and asking for a conference, attaching documentation it said supported a lower assessment.

The Tax Commissioner denied the appeal outright because it was filed too late. Virginia Code § 58.1-1821 gives a taxpayer only 90 days from the date of an assessment to apply for correction to the Tax Commissioner, and Title 23 VAC 10-20-165 makes clear that an incomplete appeal or notice of intent to appeal does not stop that clock. Based on the audit closure letter dated October 1, 2019, the Taxpayer's deadline to file a complete appeal was December 30, 2019. The Taxpayer's letter did not reach the Department until May 18, 2020 (sent by fax), months past the deadline, so the appeal was barred.

The Commissioner also separately addressed the Taxpayer's request for a conference and its resubmitted documentation, even though the appeal was untimely. The auditor had already given the Taxpayer multiple deadlines to produce records during the audit, and in a final documentation review the Taxpayer did not produce anything that would have changed the result -- many invoices were from the wrong sample year, and others showed taxable items with no tax paid. Because the audit process had already given the Taxpayer a full opportunity to submit records, and the appeal itself was late, the Commissioner denied the conference request and upheld the assessment as correct, with interest continuing to accrue unless paid within 60 days.

What this means for you

Businesses that receive a Virginia audit assessment

The 90-day clock in Va. Code § 58.1-1821 starts running from the date of the assessment (here, tied to the October 1, 2019 audit closure letter) and is strictly enforced. Sending an incomplete letter, or waiting to gather more documentation before appealing, does not pause or extend that deadline under Title 23 VAC 10-20-165. If you intend to dispute an assessment, file a complete written appeal well before the 90-day mark, even if you plan to supplement it later.

Taxpayers who want to submit additional records after an audit

Once an auditor has given you a fair opportunity -- including multiple deadlines -- to produce documentation during the audit itself, submitting the same or similar records again after the fact, especially outside the appeal window, is unlikely to change the outcome. Records that don't match the audit sample period, or that show tax-due items with no tax actually charged, will not undercut an assessment.

Retailers who also perform services (like salons)

This case involved a nail salon that also made retail sales alongside its services. Retail sales of tangible personal property remain subject to Virginia retail sales and use tax even when the primary business is a service business, and untaxed purchases uncovered in an audit can lead to an assessment regardless of the business's main line of work.

Common questions

Q: Was the audit assessment actually overturned or corrected?
A: No. The Tax Commissioner found the assessment correct. The appeal was barred as untimely, and even considering the merits, the Taxpayer had not produced documentation during the audit's final review that would have justified changing the assessment.

Q: Why was the appeal considered "out of statute"?
A: Va. Code § 58.1-1821 requires a complete administrative appeal within 90 days of the assessment. Based on the October 1, 2019 audit closure letter, the deadline was December 30, 2019. The Taxpayer's letter was not sent until May 18, 2020, well past that date.

Q: Could the Taxpayer have fixed this by sending a partial letter before the deadline and following up later?
A: No. Title 23 VAC 10-20-165, Subsection D 4, specifically states that an incomplete appeal or notice of intent to appeal does not satisfy or extend the 90-day limitation period. Only a complete, timely appeal preserves the right to a correction.

Q: Why did the Commissioner deny the request for a conference if the appeal was already barred?
A: The Commissioner addressed it anyway on the merits: the auditor had given the Taxpayer multiple deadlines to produce documentation during the audit, and in the final review the Taxpayer's submitted invoices largely did not match the sample year or showed taxable items with no tax paid, so there was nothing new to warrant revising the assessment.

Q: What happens next for the Taxpayer?
A: The ruling states an updated bill with accrued interest would be mailed, and no further interest would accrue if the outstanding assessment was paid within 60 days of the ruling letter.

Citations and references

Statutes:

• Va. Code § 58.1-1821 (90-day deadline to apply to the Tax Commissioner for correction of an assessment)
• Title 23 VAC 10-20-165 (guidelines for filing administrative appeals; Subsection D 4 -- an incomplete appeal or notice of intent to appeal does not satisfy or extend the 90-day limitation period)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-17

Original ruling text

February 16, 2021

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

Dear *:

This is in response to your letter in which you seek clarification of the retail sales and use tax assessment issued to * (the "Taxpayer"), for the period of February 2016 through June 2019.

FACTS

The Taxpayer operates a nail salon which offers services such as manicures, pedicures, and massages. The Taxpayer also makes retail sales. The Department’s audit disclosed that the Taxpayer made untaxed purchases. The Taxpayer seeks clarification of the results of the audit based on documentation provided to the auditor. The Taxpayer includes the previously reviewed documentation with its appeals correspondence.

DETERMINATION

Appeal Not Timely Filed

Virginia Code § 58.1-1821 states that "[a]ny person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner." Title 23 of the Virginia Administrative Code (VAC) 10-20-165 interprets Virginia Code § 58.1-1821 and sets out guidelines for the filing of administrative appeals. Subsection D 4 of this regulation states: "An incomplete appeal or notice of intent to appeal does not satisfy or extend the 90-day limitation period."

Pursuant to Virginia Code § 58.1-1821 and Title 23 VAC 10-20-165, the Taxpayer was required to file a complete administrative appeal no later than December 30, 2019. The Taxpayer's correspondence to the Department via facsimile was sent on May 18, 2020 and, therefore, is not a timely appeal filed with the Department. Accordingly, the Taxpayer is barred from filing an application for correction of the assessments.

In addition, the Taxpayer requests a conference to discuss the audit results. It is my understanding that the auditor gave the Taxpayer multiple deadlines to respond to documentation requests. During a final documentation review, the Taxpayer did not produce any documentation to warrant revision of the assessment. For example, the auditor notes that most of the invoices submitted by the Taxpayer were not in the same sample year as the transactions listed on the exceptions list. Other invoices submitted to the auditor contained taxable items upon which no tax was paid on the invoice. The auditor explained to the Taxpayer that any additional documentation would have to be reviewed during an appeal due to the sufficient amount of time allowed for documentation review during the audit. It is my understanding that the auditor sent an audit closure letter dated October 1, 2019 that included information regarding the Taxpayer’s liability, appeal requirements, and a field audit report. The Taxpayer has not submitted a timely or complete appeal with alleged errors. The Taxpayer also has not provided any new documentation for review. Accordingly, the Taxpayer’s request for a conference cannot be granted.

Based on this determination, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 60 days from the date of this letter.

The Code of Virginia section and regulation cited, along with other reference documents, 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/3425.G