My sales and use tax audit didn't credit use tax I already paid, and it covers months after I closed my business. Can I get the credit and have the closed months removed?

Plain-English summary

A consuming contractor was audited for July 2020 through June 2023 and assessed sales and use tax on untaxed purchases. It appealed on two grounds, and the Commissioner handled each practically — sending the case back to the auditor.

1. Credit for use tax the contractor already paid (2020–2021). The contractor had accrued and paid use tax on some purchases on its 2022 ST-9 returns, and the auditor already offset those against the taxable measure. But the auditor gave no offset for 2020 and 2021 because, at the time, the contractor couldn't substantiate those accruals. With its appeal, the contractor attached the 2020/2021 sales-tax return documents. Because that's new substantiating documentation, the Commissioner returned the case to audit staff to review it and adjust the assessment as appropriate. (Practical lesson: you get credit for use tax you actually paid — but you have to prove it, and the time to hand over the proof is during the audit, not after.)

2. Audit periods after the business closed (January–June 2023). The contractor's business ceased operating in December 2022 (confirmed by audit staff), and it wanted January–June 2023 removed. The Commissioner declined — but favorably. A review showed that no purchases from January–June 2023 were actually assessed, so their inclusion is immaterial (it added nothing to the bill). More to the point, leaving those months in the audit benefits the taxpayer, because once a period is audited it is closed to future review. Removing them would reopen the door to a later look.

Where it stands. The appeal is closed and the case goes back to audit staff for revision. If any issue remains after that revision, the taxpayer may file a further appeal within 90 days of the audit revision under Va. Code § 58.1-1821 and 23 VAC 10-20-165.

What this means for you

Businesses and contractors under a use tax audit

If you've already accrued and paid use tax on purchases, you're entitled to have it credited against the audit — but the credit depends on substantiation. This taxpayer got no credit for 2020/2021 until it produced the return documents. Keep and present your ST-9 detail and payment records for the whole audit period, not just the years you happen to have handy.

Businesses that have closed

Don't reflexively fight to shrink an audit period. Months in which nothing was assessed cost you nothing, and having a period audited and closed actually protects you from a future assessment for those months. Removing "empty" closed periods can leave them open to later review — usually the opposite of what you want.

Tax professionals

Two useful points: (1) an offset for previously paid use tax turns on documentation the taxpayer must provide, and a post-assessment submission can still get the case remanded for review; and (2) an audited period is closed to further review, so the finality of an audited stretch can be a benefit worth preserving. Note the 90-day clock to appeal an audit revision.

Common questions

Q: The audit didn't credit use tax I already paid. Can I still get it?
A: Yes, if you can substantiate it. Here the auditor credited the 2022 use tax the contractor could document but not the 2020/2021 amounts it couldn't. When the contractor later produced the 2020/2021 return documents, the case was sent back to audit staff to review and adjust.

Q: My audit covers months after I closed my business. Shouldn't those come out?
A: Not necessarily, and it may not help you. If no purchases in those months were assessed, they add nothing to your bill — and leaving them in the audit closes those periods to future review, which benefits you.

Q: The appeal is "closed" but the auditor is still revising. What are my options?
A: After the revision, if issues remain, you can file a further appeal within 90 days of the audit revision under Va. Code § 58.1-1821 (and 23 VAC 10-20-165).

Citations and references

Statutes and regulations:

• Va. Code § 58.1-1821 — application to the Tax Commissioner for correction of an assessment; a further appeal may be filed within 90 days of an audit revision
• 23 VAC 10-20-165 — administrative appeal and revision procedures

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-89

Original ruling text

June 25, 2025

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 2020 through June 2023.

FACTS

An audit was conducted on the books and records of the Taxpayer, a consuming contractor, for the period as issue. An assessment of Virginia sales and use tax and interest was issued for untaxed purchases.

The Taxpayer filed an application for correction contending that (1) credit for use taxes paid in 2020 and 2021 was not applied during the audit and (2) the audit span incorporated periods when the business was closed.

ANALYSIS

Offset for Use Tax Paid

The Taxpayer accrued and paid use tax on some of its purchases on its 2022 sales and use tax returns (Form ST-9). Based on this information, the auditor offset the reported taxable purchases against the taxable measure. However, no offset was given for the 2020 and 2021 periods because the Taxpayer could not substantiate the accrual. The Taxpayer has included sales tax return documents for the 2020 and 2021 periods with its application for correction.

Assessment for Inactive Periods

The Taxpayer’s business ceased operation in December of 2022. This was confirmed by audit staff. The Taxpayer contends that the periods of January 2023 through June 2023 should be removed from the audit. The review of the auditor’s exception listing confirmed that no purchases from January 2023 through June 2023 were assessed as part of this audit. Therefore, the fact that these periods were included in the audit is immaterial. Further, it benefits the Taxpayer to have these periods remain in the audit, as those periods are now closed for review in the future.

DETERMINATION

This case will be returned to audit staff for revision. They will review the documentation and make adjustments, as appropriate. At this time the appeal matter is being closed. At the conclusion of the auditor’s review, should any issues remain, the Taxpayer may submit an appeal within 90 days of the audit revision in accordance with Virginia Code § 58.1-1821 and Title 23 of the Virginia Administrative Code 10-20-165.

The Code of Virginia section and regulation cited are available online at law.lis.virginia.gov. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/5075.Z