The Department estimated my company's sales tax liability because we never filed returns, and the estimate doesn't match our point-of-sale records -- can we get it corrected without ever filing the actual returns?

Plain-English summary

A Virginia dealer failed to file retail sales and use tax returns for a stretch of nearly three years -- April 2020 through January 2023. Because no returns were filed, the Department issued estimated assessments based on the best information available to it, along with the penalty and interest that come with unfiled-period assessments. The dealer appealed, arguing the Department's estimates didn't line up with data from its own point-of-sale (POS) system.

An assertion of mismatch, without more, wasn't enough. The Department's determination rests on a few settled points:

• Filing is mandatory regardless of liability. Va. Code § 58.1-615 requires every dealer to file a monthly sales/use tax return whether or not it actually owes tax for that period -- there's no exception for a business that believes it has nothing to remit.
• Non-filing triggers an estimate, by design. Va. Code §§ 58.1-618 and 58.1-635 authorize the Department to estimate a non-filing dealer's liability and impose the associated penalty and interest.
• The estimate is presumed correct. Under Va. Code § 58.1-618, an estimated assessment is prima facie correct -- the burden is on the dealer to prove it's wrong, not on the Department to prove it's right.

Because the dealer hadn't filed the actual returns or provided documentation showing what its correct liability should have been, simply pointing to a discrepancy with internal POS records didn't overcome that presumption. The Department told the dealer that if it believed the estimates were incorrect, the way to fix that was to file the actual returns for the periods at issue, backed by sufficient supporting documentation -- and gave it 60 days from the date of the letter to do so. If the returns weren't filed within that window, the estimated assessments would stand as correct and collection action could resume.

What this means for you

Any dealer that hasn't filed required Virginia sales/use tax returns

File your returns every period, even if you believe no tax is due -- Va. Code § 58.1-615 doesn't excuse filing just because there's no liability. If you fall behind, the Department will estimate your liability based on whatever information it has, and that estimate is presumed correct until you prove otherwise.

A dealer disputing an estimated assessment for unfiled periods

Don't expect to win an appeal just by asserting the estimate is wrong. You need to actually file the missing returns, supported by real documentation showing your correct liability -- an unsupported claim that your own internal records disagree with the Department's estimate isn't enough to shift the burden of proof.

Anyone who receives a 60-day window to file missing returns after an appeal like this

Treat that window seriously. This ruling shows the Department will let the original estimated assessment become final and resume collection if the deadline passes without the returns and documentation being submitted.

Common questions

Q: The Department estimated my sales tax liability because I didn't file returns -- do I have to prove the estimate wrong, or does the Department have to prove it's right?
A: Per Va. Code § 58.1-618, the estimate is presumed correct; the burden is on you to prove it's incorrect.

Q: Can I dispute an estimated sales tax assessment just by saying it doesn't match my own records?
A: Not according to this ruling. You need to actually file the missing returns along with documentation supporting the correct liability -- a bare assertion of mismatch isn't sufficient.

Q: Do I still have to file a sales tax return for a period where I don't think I owe any tax?
A: Yes. Va. Code § 58.1-615 requires dealers to file a return every period regardless of whether tax is due for that period.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-615 -- dealers must file a monthly sales/use tax return regardless of whether tax is due
• Va. Code § 58.1-618 -- the Department may issue an estimated assessment when a dealer fails to file, and that assessment is prima facie correct
• Va. Code § 58.1-635 -- penalty and interest apply to assessments for unfiled periods

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 23-119

Original ruling text

October 26, 2023

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

Dear *:

This will respond to your letter in which you seek correction of the retail sales and use tax assessments issued to * (the “Taxpayer”) for the periods April 2020 through January 2023.

FACTS

The Taxpayer failed to file Virginia retail sales and use tax returns for the periods at issue, and the Department issued estimated assessments based upon the best information available. The Taxpayer timely appealed the assessments, alleging the estimated assessments do not match data from its point of sale (POS) system.

DETERMINATION

As a dealer, the Taxpayer is required to file a monthly retail sales and use tax return with the Department whether or not it is liable to remit any tax for the period covered by the return. See Virginia Code § 58.1-615. When a dealer fails to file a return, the Department is permitted to issue an assessment estimating the tax liability and imposing the associated penalties and interest. See Virginia Code §§ 58.1-618 and 58.1-635. The Department’s estimated assessments are deemed prima facie correct, meaning the burden of proof is upon the Taxpayer to show that an assessment is incorrect. See Virginia Code § 58.1-618.

Because the Taxpayer failed to file the required returns, the Department was correct in issuing assessments, estimating the tax liability, and imposing the associated penalty and interest. If the Taxpayer believes that the estimated assessments are incorrect, it should file the relevant returns and provide sufficient supporting documentation showing the correct tax liability.

The Taxpayer should submit returns for the periods at issue within 60 days from the date of this letter. The Department will process the Taxpayer’s returns, request any additional information necessary, and adjust the assessments based on the new information provided. If the Department does not receive the returns within the timeframe provided, the Department’s estimated assessments will be considered correct and collection action may resume.

The Code of Virginia sections cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at (804) , or via email at **@tax.virginia.gov.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4583-C