We're out-of-state headquartered with one Virginia location, and we say we were never contacted about an audit before getting an assessment -- does the Department have to actually redo the audit if we dispute getting notice?

Plain-English summary

A manufacturer of windows and doors, headquartered out-of-state but with a Virginia location in Roanoke, was audited by the Department for its retail sales and use tax activity at that Roanoke location, covering July 2015 through July 2018. An assessment was issued in July 2020. When the assessment arrived at the company's OUT-OF-STATE headquarters, the company appealed, claiming it had never been contacted about the audit in the first place because all correspondence had supposedly been mailed to the wrong location -- and asked the Department to send an auditor to start the audit over from scratch, since it didn't believe it actually owed the tax.

The Department's own paper trail told a very different story. According to its records, the Department first contacted the company about the audit in August 2018 -- nearly two years before the assessment issued. Throughout 2018, 2019, and into 2020, the assigned auditor corresponded regularly with the company's own Accounting Supervisor, primarily by email (with supporting documentation exchanged that way), plus several letters mailed to the SAME out-of-state headquarters address the company later claimed never received anything. Partway through the process, the Accounting Supervisor simply stopped responding and no further documentation came in. The auditor didn't just give up -- in March 2020, it faxed AND mailed the full audit work papers to headquarters, giving the company until mid-April 2020 to flag anything it thought shouldn't be included. When nothing came back, the auditor closed the audit and again mailed/emailed the closed report. Even after the company filed its appeal, the Department sent yet another letter to the headquarters address inviting the company to discuss what information was needed to resolve things.

Given that extensive, well-documented correspondence history with an actual company employee, the "we were never notified" claim didn't hold up. The Tax Commissioner found clear evidence the audit was properly initiated and actively conducted with the company's own Accounting Supervisor over an extended period -- whatever internal communication gap later occurred at the company (between that supervisor and the rest of the organization) wasn't the Department's failure to notify. The assessment was upheld as issued.

What this means for you

Multi-location or out-of-state businesses with a Virginia audit in progress

Make sure whoever handles audit correspondence at your company (an accounting supervisor, controller, or similar) actually communicates internally with leadership and keeps records of what's been received and discussed -- a claim of "we were never notified" won't succeed against the Department's own documented correspondence trail with your own employee, even one who later stops responding or leaves the conversation.

Companies where the person handling a state tax audit might leave or go silent mid-process

If your point-of-contact for an ongoing audit stops engaging, make sure someone else in the organization picks up the thread -- the Department will typically continue mailing/emailing to the same known contact and address, and going silent doesn't pause or invalidate the audit; it can result in the audit closing based on the information already on hand.

Taxpayers appealing an assessment on procedural (rather than substantive) grounds

A bare assertion that you weren't notified is unlikely to succeed if the Department can produce a documented, extended correspondence history (emails, letters, work papers, deadlines) with an actual person at your company -- come prepared to substantively engage with the audit's findings rather than relying solely on a notice-defect argument.

Common questions

Q: If our accounting staff stopped responding to the Department mid-audit, does that mean we were never properly notified?
A: No -- this ruling shows that once the Department establishes it properly initiated contact and corresponded with an actual employee over an extended period, a later communication breakdown (the employee going silent) doesn't undo that initial, documented notification.

Q: Can we ask the Department to completely restart an audit if we believe we were never notified?
A: You can ask, but this ruling shows that request will fail if the Department's own records document extensive prior correspondence with your company at the correct address -- the appeal instead needs to substantively engage with the audit's findings.

Q: Does mailing correspondence to a company's out-of-state headquarters count as proper notification for a Virginia-location audit?
A: Yes, based on this ruling -- correspondence sent to and received by an actual employee (here, an Accounting Supervisor) at the company's headquarters address was treated as adequate notification, even though the audited business activity was at a separate Virginia location.

Citations and references

• No outside Public Documents, regulations, or case law are cited in this ruling beyond the general Va. Code § 58.1-1821 appeal procedure.

Subject

Audit : Notification, Location of Records, Authorized Taxpayer Representative

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-60

Original ruling text

May 18, 2021

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 assessment issued for the period July 2015 through July 2018. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a manufacturer of windows and doors and is headquartered out-of-state with a location in Roanoke, Virginia. A retail sales and use tax audit was conducted with regard to the Taxpayer’s Roanoke location, and an assessment was issued on July 15, 2020. After receipt of the assessment at its out-of-state headquarters, the Taxpayer appeals the assessment on the basis that it was not contacted for an audit because all correspondence was mailed to the wrong location. The Taxpayer contends it was not notified of the audit and has no knowledge of the assessment and requests the Department send an auditor to conduct an audit and determine liability as the Taxpayer does not believe it is liable for the outstanding assessment.

DETERMINATION

The Department’s records indicate the Taxpayer was contacted for an audit in August 2018. The Department’s auditor corresponded with the Taxpayer’s Accounting Supervisor, *, throughout 2018, 2019 and into 2020 regarding the ongoing audit. The Department’s records indicate that the auditor corresponded with the Accounting Supervisor primarily through email and was provided documentation through email, in addition to having sent several letters throughout the audit process addressed to the Accounting Supervisor at the out-of-state headquarters.

During the latter part of the audit process, the Accounting Supervisor ceased corresponding with the auditor and no further documentation was provided to the auditor. In early March 2020, the auditor faxed and mailed a letter to the Taxpayer at the out-of-state headquarters which included the audit work papers. In the letter, the auditor requested additional information and invoices by April 16, 2020 if there were items that the Taxpayer believed should not be included in the audit. Subsequently, a letter with the closed audit report was mailed and emailed to the Taxpayer informing it that the audit would be concluded with no additional information review because none had been provided by the Taxpayer. On October 26, 2020, a letter was mailed to the Taxpayer at the out-of-state headquarters regarding the appeal letter, and requested the Taxpayer to contact the auditor to discuss the information needed to resolve the audit matter. A copy of the letter is enclosed.

There is clear evidence that the Taxpayer was contacted regarding the audit, and that an audit was properly initiated and in the process of being conducted with the Accounting Supervisor. As such, there is no basis for the Taxpayer’s claims that it was not notified of the audit.

Based on this determination, the assessment is correct as issued. 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. If the Taxpayer has questions concerning payment of the assessment or bill, the Taxpayer may contact the Delinquent Collections Unit at 804-367-8045.

The Code of Virginia, 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/3570L