Which reconstruction-contractor purchases could be removed from a Virginia use-tax audit when invoices were missing, mismatched, or showed duplicates?

Subject

Contractor's records controlled which audit items were removed

Plain-English summary

Virginia revised the contractor's use-tax audit only for purchases supported by adequate records or shown to be duplicates. The Department reviewed the contested purchase and asset line items individually.

Transactions came out of the audit when the contractor's documentation supported removal, and duplicate purchase and asset entries were deleted. Other items stayed because there was no invoice, the invoice did not match the audited transaction, the invoice showed no sales tax, or the vendor invoice showed the contractor picked up the property rather than receiving installed property.

The contractor's assumption that a retail outlet would have charged sales tax was not a substitute for a receipt or invoice proving that tax was paid.

What this means for you

• Keep invoices and receipts that match the exact audited transaction and show tax charged.
• Reconcile purchase and fixed-asset records to identify duplicate audit entries.
• Do not rely on the vendor's retail status as proof that sales tax was collected.
• The assessment is presumed correct until the taxpayer proves a particular item wrong.

Citations and references

• Va. Code §§ 58.1-102 and 58.1-205.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-237

Original ruling text

December 19, 2013

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 consumer use tax assessment issued for the period May 2006 through April 2012. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer provides commercial and residential reconstruction services. The Taxpayer contests the inclusion of certain transactions in the audit. The Taxpayer provides documentation, a spreadsheet, and a summary of the documents presented in support of its contention that the contested transactions should be removed from the audit.

DETERMINATION

The Taxpayer contends that certain transactions should be removed from the audit for the following reasons:

(1) The sales tax has been previously paid, as evidenced by an invoice or receipt;

(2) Sales tax is not due on transactions for services;

(3) Transactions were double counted in the audit;

(4) Transactions are for exempt purchases from a using and consuming contractor; and

(5) Transactions were made at retail outlets where the sales tax would have been charged.

The Taxpayer also identifies certain transactions in the audit that it is not contesting, and has remitted a payment of tax to the Department with respect to those transactions.

Virginia Code § 58.1-102 states that "It shall be the duty of every taxpayer to retain suitable records and documents substantiating all information contained on any return required by this subtitle and any such other pertinent records or documents as the Tax Commissioner may require by regulation. The records and documents shall be preserved for a period of three years from the required date for filing a return to which such records or documents pertain."

Virginia Code § 58.1-205 1 states that "Any assessment of a tax by the Department shall be deemed prima facie correct." The taxpayer has the burden of proving that the tax assessed by the Department is incorrect.

With Va. Code § 58.1-102 and Va. Code § 58.1-205 in mind, the documentation presented by the Taxpayer has been reviewed by the Department. Adjustments to the audit assessment can only be made based upon accurate records of the transactions at issue and the Taxpayer's ability to demonstrate that the assessment of tax is incorrect. The Purchases and Assets transactions at issue are addressed below.

Purchases

Line Items 1-4

The invoices provided by the Taxpayer do not indicate that the property at issue was installed by the vendors. Rather, the invoices indicate that the property at issue was picked up by the Taxpayer. Accordingly, the tax on these transactions was properly assessed in the audit.

Line Items 5, 8, 15-17, 19, 21-26, 28, 31-36, 39-42, 44-53

The Taxpayer did not provide invoices for these line items. The Taxpayer has not met its burden of proving that the tax as assessed is incorrect. Accordingly, these line items will remain in the audit.

Line Items 6, 9, 18, 55-60

The Taxpayer is not contesting the inclusion of these transactions in the audit. Accordingly, no action is required by the Department.

Line Items 7, 10-13, 20, 27, 30, 37, 38, 54

Based upon the documentation provided, these transactions will be removed from the audit.

Line Item 14

The invoice provided did not include sales tax. Accordingly, this transaction is properly included in the audit and will not be removed.

Line 29

The invoice provided does not correspond to the transaction included in the audit. Accordingly, this transaction will remain in the audit.

Line Item 43

This transaction is a duplicate and will be removed from the audit.

Assets

Line Item 1

Based upon the documentation provided, this transaction will be removed from the audit.

Line Items 2, 4, 6

The Taxpayer is not contesting the inclusion of these transactions in the audit. Accordingly, no action is required by the Department.

Line Item 3

This transaction is a duplicate and will be removed from the audit.

Line Items 5, 7-9

The Taxpayer did not provide invoices for these line items. The Taxpayer has not met its burden of proving that the tax as assessed is incorrect. Accordingly, these line items will remain in the audit.

CONCLUSION

In accordance with this determination, the assessment will be revised by the appropriate field audit staff. A revised bill, with interest accrued to date, will be mailed to the Taxpayer once the revisions are complete. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Please remit payment within 30 days from the date of the bill to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *, Post Office Box 27203, Richmond, Virginia 23261-7203.

The Code of Virginia sections cited 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 determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5375476889 . P