Could a restaurant avoid Virginia tax, interest, or penalty because the employee handling sales-tax compliance was hospitalized?

Plain-English summary

Virginia upheld the restaurant's tax, interest, and penalty in full. The restaurant collected sales tax from customers but did not file the required returns or remit the money for multiple periods.

Virginia treated collected sales tax as held in trust for the Commonwealth. The hospitalization of the employee responsible for compliance did not eliminate the restaurant's filing and payment duties.

Interest was not considered punishment; it compensated Virginia for the period the restaurant used money that should have been remitted. The cited regulation prohibited penalty waiver when a taxpayer collected sales tax but failed to send it to the Department.

The restaurant had established a payment plan and was directed to continue making payments. Virginia also supplied the requested audit-detail documents.

What this means for you

• Collected sales tax is not operating cash; segregate and remit it.
• Build backup responsibility for filing during employee illness or absence.
• Interest can remain due even when failure was not intentional.
• Collected-but-unremitted tax receives especially strict penalty treatment.

Citations and references

• Va. Code §§ 58.1-612(A), 58.1-615(A), 58.1-616, 58.1-623, and 58.1-635.
• 23 VAC 10-210-2032(B)(3).

Subject

Failure to file sales tax returns and remit the tax collected to the Department .

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-184

Original ruling text

November 8, 2011

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 November 2009 through December 2010. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a full service restaurant trading as * located in *** Virginia. The Taxpayer was assessed in the audit for periods in which the Taxpayer did not file sales tax returns and did not remit sales tax payments to the Department.

The Taxpayer maintains that due to a lengthy hospital stay by the person responsible for its sales tax compliance, it was unable to keep up to date with its sales tax account with the Department. The Taxpayer contends that the assessment is unfair and requests documentation showing the details of the assessment, including, but not limited to the amounts assessed, interest and penalties charged, as well as the periods they apply to.

DETERMINATION

Unremitted Sales Tax

Virginia Code § 58.1-612 A provides, in pertinent part, "[t]he tax levied by §§ 58.1-603 and 58.1-604 shall be collectible from all persons who are dealers ...."

Virginia Code § 58.1-615 A states, in pertinent part:

Every, dealer required to collect or pay the sales or use tax shall, on or before the twentieth day of the month following the month in which the tax shall become effective, transmit to the Tax Commissioner a return showing the gross sales, gross proceeds, or cost price, as the case may be, arising from all transactions taxable under this chapter during the preceding calendar month, and thereafter a like return shall be prepared and transmitted to the Tax Commissioner by every dealer on or before the twentieth day of each month, for the preceding calendar month.

Virginia Code § 58.1-616 provides:

At the time of transmitting the return required under § 58.1-615, the dealer shall remit to the Tax Commissioner the amount of tax due after making appropriate adjustments for purchases returned, repossessions, and accounts uncollectible and charged of as provided in §§ 58.1-609, 58.1-620 and 58.1-621. The tax imposed by this chapter shall for each period become delinquent on the twenty-first day of the succeeding month if not paid.

Virginia Code § 58.1-623 provides, in pertinent part, "[a]ll sums collected by a dealer as required by this chapter shall be deemed to be held in trust for the Commonwealth."

Based upon the authorities cited above, the Taxpayer is required to collect the Virginia sales tax at its locations when sales are made to its customers. Additionally, the Taxpayer is required to timely file Virginia sales tax returns and remit the collected tax, held in trust for the Commonwealth, with such returns. In this instance, the Taxpayer contends that it did not file its returns and remit the tax in a timely manner due to a lengthy hospital stay by the person responsible for attending to its sales tax compliance. While I appreciate the Taxpayer's situation, the fact remains that the Taxpayer failed to file the sales tax returns and remit the tax collected to the Department as required. Accordingly, the tax is correct as assessed.

Interest

Virginia Code § 58.1-635 C states, "Interest at a rate determined in accordance with § 58.1-15, shall accrue on the tax until the same is paid, or until an assessment is made, pursuant to § 58.1-15, after which interest shall accrue as provided therein."

Interest is not assessed as a penalty for noncompliance with the tax laws. Rather, it simply represents a fee for the use of money over a period of time. In this case, the Taxpayer had the use of the money that was properly due the Commonwealth. Therefore, I find no basis to waive the interest assessed as a result of the Department's audit.

Penalty

Virginia Code § 58.1-635 A states:

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. In no case, however, shall the penalty be less than ten dollars and such minimum penalty shall apply whether or not any tax is due for the period for which such return was required. 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. All penalties and interest imposed by this chapter shall be payable by the dealer and collectible by the Tax Commissioner in the same manner as if they were a part of the tax imposed.

Title 23 of the Virginia Administrative Code 10-210-2032 B 3 states that penalty cannot be waived if the taxpayer has collected the sales tax, but failed to remit it to the Department of Taxation. In this instance, the Taxpayer was assessed penalty in the audit because the Taxpayer collected the sales tax from its customers, but failed to remit such tax to the Department. Accordingly, pursuant to the aforementioned authorities, the penalty was properly assessed, and there is no basis for waiving the penalty.

CONCLUSION

Based upon this determination, the assessment is correct as issued. It is my understanding that the Taxpayer has established a payment plan with the Department with respect to the assessment at issue. The Taxpayer should continue to make payments in accordance with the payment plan established. The audit report was originally mailed to the Taxpayer, in care of * at address in ** Ohio. Please find enclosed documents that provide the details of the audit requested by the Taxpayer.

The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4730592668.P