Could a gas station overturn estimated Virginia sales and use tax assessments without producing its records?

Plain-English summary

Virginia upheld estimated sales and use tax assessments against a gas station and convenience store. The business did not provide records during the audit, after receiving a certified-mail draft, or within the additional 60 days it requested in its appeal.

The auditor therefore estimated liability from reported sales, estimated purchases at 20% of monthly gross sales, and estimated annual fixed-asset additions at 5% of June gross sales for 2013 through 2016. Va. Code § 58.1-618 allowed use of the best information available when the dealer's records were missing.

Because assessments are presumed correct and the taxpayer supplied no records or contrary evidence, it did not meet its burden of proof. The estimates and accrued interest remained due.

Common questions

Did Virginia approve every estimation method as universally correct? No. It upheld these estimates because the taxpayer failed to provide the records needed to test or replace them.

Did promising records on appeal help? No. The promised 60-day period expired without a submission.

Citations and references

• Va. Code §§ 58.1-618 and 58.1-205
• P.D. 16-75 and P.D. 98-4

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 18-83

Original ruling text

May 9, 2018

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 Virginia retail sales and use tax assessments issued for the period January 2013 through April 2017.

FACTS

The Taxpayer operates a gas station and convenience store. During the Department's audit, the Taxpayer did not provide any records to determine the audit liability. Therefore, the Taxpayer's liability was estimated in order to generate the assessments. With respect to sales made during the audit period, the auditor listed all exempt sales and food sales reported by the Taxpayer as exceptions in the audit since the sales could not be verified. Further, for the month of September 2016, it appeared that the Taxpayer neglected to report a food sales amount. Accordingly, the auditor reported an estimated average amount as an exception. With respect to purchases made during the audit period, the auditor used 20 percent of the monthly gross sales amounts to calculate the estimated liability. Finally, with respect to fixed assets, the Taxpayer has not filed Virginia corporate income tax returns with supporting federal income tax returns for any years in the audit period. As such, the auditor could not determine if the Taxpayer had acquired any fixed assets during the audit period and estimated asset additions of 5 percent of gross sales for the month of June in tax years 2013 through 2016.

Prior to the estimated assessments being issued, the auditor sent a draft of the estimated assessments to the Taxpayer via certified mail, with instructions to the Taxpayer to provide the records necessary to complete the audit review. The Taxpayer did not respond or provide the required documents by the date specified by the auditor. Accordingly, the audit was finalized and the Department issued assessments to the Taxpayer. Following the estimated assessments being issued, the Taxpayer filed an appeal with the Department, stating that it would provide the necessary records within 60 days, and requesting that the records be reviewed by the Department. The 60-day period has passed, and as of the date of this letter, the Taxpayer has not provided any records to the Department.

DETERMINATION

The estimated assessments were issued to the Taxpayer in accordance with Virginia Code § 58.1-618. Pursuant to Virginia Code § 58.1-618, the Department is authorized to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists. In this instance, the Taxpayer failed to provide records during the performance of the audit for review by the auditor. Accordingly, the auditor used the best information available to estimate the Taxpayer's liability.

Likewise, the Taxpayer has not provided the records as addressed in its appeal. Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed prima facie correct. The Taxpayer has the burden of proving that the assessment is incorrect. In this instance, the Taxpayer has not provided records or evidence to refute the assessments and has not met its burden of proof. Accordingly, the assessments are upheld as issued.

This determination is consistent with prior rulings issued by the Department in which estimated assessments were upheld because the taxpayers did not provide records for review during the Department's audit. In Public Document (P.D.) 16-75 (5/11/16) and P.D. 98-4 (1/4/98), the taxpayers did not provide records during the audits to determine the taxpayers' sales and use tax liability. The auditor used the best information available to estimate the sales and use tax liabilities. The taxpayers did not provide evidence to refute the estimated assessments. Accordingly, the methodologies used to determine the assessments were deemed correct and the estimated assessments were upheld.

CONCLUSION

Based on the foregoing, I find no basis to adjust the assessments and they are upheld as issued. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessments are paid within 30 days from the date of the bill. Please remit payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *. If you have any questions concerning payment of the assessment, you may contact at **.

The Code of Virginia sections and public documents 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/1591.P