Will Virginia remove a communications sales and use tax assessment on Universal Service Fund and PUC fee charges if the taxpayer proves a one-month system error caused the tax to be under-collected?

Plain-English summary

A Virginia audit assessed communications sales and use tax on charges that a taxpayer billed to its customers during an October 2018 sample period. The auditor found that the sales price used to calculate the tax hadn't included the Universal Service Fund (USF) charge and Public Utilities Commission (PUC) fee, so the auditor assessed tax on those amounts. The taxpayer appealed, arguing that its miscalculation of the communications tax was caused by a one-time system abnormality that occurred only during that sample month, and it submitted documentation to support that claim.

Rather than ruling on the merits, the Tax Commissioner sent the matter back to the auditor to review the taxpayer's documentation and make any adjustments that are warranted, closing the appeal. The taxpayer had already paid the assessment in full; if the auditor's review supports the taxpayer's position, the taxpayer will receive a refund plus refund interest. If issues remain after that review, the taxpayer can file a new 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

If you're contesting a sales-tax audit finding based on unusual billing data

If you believe an audit sample period doesn't reflect your normal billing practices because of a system glitch or other anomaly, be ready to document it specifically — including why the issue was limited to that period. Virginia's Tax Commissioner can decline to rule directly on such a factual dispute and instead route it back to the auditor for a documentation review, which still preserves your right to a further appeal (within 90 days of any revised assessment) if you disagree with the outcome.

Common questions

Q: Did the Tax Commissioner decide whether the USF and PUC charges were taxable?
A: No. The ruling doesn't resolve that question; it closes the appeal by directing the auditor to review the taxpayer's documentation of the claimed system abnormality and make adjustments as appropriate.

Q: What happens if the auditor's review shows the tax was overpaid?
A: The taxpayer, who had already paid the assessment in full, will receive a refund plus refund interest if the review results in adjustments to the audit.

Citations and references

• Va. Code § 58.1-1821 (application for correction of assessment; appeal rights)
• Title 23 of the Virginia Administrative Code 10-20-165

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-137

Original ruling text

August 11, 2020

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

Dear *:

The Department previously acknowledged receipt of the appeal filed on behalf of * (the “Taxpayer”). The main issue in the appeal is the application of the communications sales and use tax on charges billed to the Taxpayer’s customers during the audit sample period October 2018.

Based on information provided by the Taxpayer, the auditor found that the sales price, upon which the communications sales and use tax was charged, did not include the Universal Service Fund (USF) charge and the Public Utilities Commission (PUC) fee. Accordingly, the auditor assessed the communications sales and use tax on the charges in the audit.

The Taxpayer maintains that its erroneous calculation of the communications sales and use tax was due to a system abnormality during the sample month. The Taxpayer maintains that the abnormality only occurred in the sample month and has provided documentation to support its contention. The Taxpayer requests that the documentation be reviewed and that the tax assessed on the charges at issue be removed from the audit.

The auditor will review the documentation and make adjustments, as appropriate. Therefore, the appeal is being closed. I understand that the assessment has been paid in full. If the review results in adjustments to the audit, the Taxpayer will receive a refund plus refund interest. At the conclusion of the auditor’s review, should 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.

If you have any questions regarding the review of documentation, you may contact the auditor. If you have any questions about the appeals process, please contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3299P