Did Virginia waive late-filing penalties for a retailer that filed omitted sales-tax returns during amnesty but could not fully pay them?

Subject

Taxpayer liable for the underpayment of the tax on retail sales.

Plain-English summary

Virginia upheld the late-filing penalties on omitted sales-tax returns that were not fully paid under amnesty. The bridal retailer had collected sales tax but not remitted it. During the Department's amnesty program, it filed some omitted returns with the required payment and placed the remaining returns under a payment agreement.

For the returns fully paid under amnesty, Virginia abated the penalty and half the interest. The other returns generated tax, interest, and late-filing penalties because they were filed without the payment required for amnesty relief.

Once all omitted returns were filed, the original audit assessment was abated in full. That meant no audit penalty remained and the first-audit penalty practice was no longer an issue.

The late-filing penalties were separate. Va. Code § 58.1-635 allowed penalty relief for providential or other good cause, but Virginia found the submitted facts insufficient. The taxpayer also had earlier late-filed returns and paid penalties. The penalties were upheld, while the taxpayer could continue its collection payment arrangement.

What this means for you

• Filing omitted returns can replace an audit estimate without eliminating return-specific late penalties.
• Historical amnesty relief required both filing and the payment specified by the program.
• An audit penalty and a late-filing penalty are distinct issues.
• Financial difficulty alone did not establish sufficient good cause on this record.

Common questions

Was a first-audit penalty left to waive?

No. Filing the omitted returns caused the audit assessment, including its penalty, to be abated.

Could the retailer continue paying over time?

Yes. The ruling said it could continue its arrangements with the Department's Collections Office.

Citations and references

• Va. Code § 58.1-635.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-18

Original ruling text

February 11, 2011

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

Dear *:

This is in response to your letter in which you request reconsideration of the Department's denial of a waiver of penalty issued to your client, * (the "Taxpayer"). The Department's audit covers the period November 2006 through July 2009.

The Taxpayer operates as a retailer of bridal fashions and accessories. The Department audited the Taxpayer for the above audit period, holding the Taxpayer liable for the underpayment of the tax on retail sales. Interest was also assessed. Because the Taxpayer collected the tax but did not remit that tax to the Department, the auditor held the Taxpayer liable for penalty. The Department's audit was completed at the time the Department's Amnesty Program was open to all taxpayers. The Taxpayer was advised that if it submitted payment of the audit assessment under the terms of amnesty, the audit penalty and one-half of the interest would be waived. The Taxpayer, however, did not have the financial capability to pay the tax and one-half of the interest at that time.

In an attempt to help the taxpayer find a financial resolution, the Department's auditor suggested that the Taxpayer file its returns for the omitted periods under amnesty and pay the tax and one-half of the interest for those periods for which the Taxpayer could make full payment. The Taxpayer decided to file the returns for January through March 2008, and January through April 2009, under amnesty. The remainder of the returns, April and June through December 2008, and May through July 2009, were also filed, but were set up under a payment agreement.

Because the Taxpayer chose to file its returns under amnesty without payment, assessments for the returns were generated. The assessments included tax, interest and penalty for late filing. For those returns that were paid under amnesty, the penalty and one-half of the interest was abated. For the remaining returns set up under a payment agreement, interest and late filing penalties were properly assessed.

The Taxpayer's representative requests a waiver of the assessed late filing penalties, citing the Department's prior practice of waiving penalty on a first-time audit in certain situations.

Audit Penalty

Once the Taxpayer filed its omitted returns for the above noted periods, the audit assessment was abated in full. As a result, there is no audit penalty that remains outstanding. Accordingly, there is no issue of first audit penalty to address.

Late Filing Penalty

Virginia Code § 58.1-635 states that:

When any dealer fails to make any return and pay the full amount of the tax required by this chapter, there shall be imposed, in addition to other penalties provided herein, a specific penalty to be added to the tax in the amount of six percent if the failure is for not more than one month, with an additional six percent for each additional month, or fraction thereof, during which the failure continues, not to exceed thirty percent in the aggregate. If such failure is due to providential or other good cause shown to the satisfaction of the Tax Commissioner, such return with or without remittance may be accepted exclusive of penalties.

In this instance and in accordance with the foregoing statute, the returns for the omitted periods were filed late and were properly assessed a late filing penalty. It is also noted that prior to the periods at issue there were other instances in which the Taxpayer filed returns late, incurring late filing penalties that were paid by the Taxpayer. Based on all of the information presented, and in consideration of the foregoing statute, I do not find that the Taxpayer has presented cause sufficient to allow for a waiver of the late filing penalties. Accordingly, the assessment of the penalties is upheld.

The balances of the Department's assessments are correct. The Taxpayer may continue its payment arrangements with the Department's Collections Office.

The Code of Virginia section cited is available on-line in the Tax Policy Library section of the Department's website, located at www.tax.virginia.gov. If you have any questions regarding this response, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-4550106643.Q