Can a restaurant on a 52-53 week fiscal year show that a monthly-based audit sample overstated its unremitted sales tax?

Plain-English summary

The audit found the restaurant's filed sales tax returns reported less than its daily sales reports showed, and booked the difference as tax collected but not remitted. Some fixed assets were also assessed use tax because invoices were missing.

The restaurant's explanation was a timing/accounting-period mismatch: it keeps books on a 52-53 week fiscal year and remits tax on 13 four-week periods, not 12 calendar months, so the auditor's monthly sample periods didn't correspond to the periods it actually reported. Virginia allows this: under 23 VAC 10-210-480, a dealer regularly keeping books on a 52-53 week annual period may report consistently with that period provided it attaches a satisfactory explanatory statement to its first return under that period, and each return includes all accounting periods ending within it. It appears the restaurant didn't attach that explanatory statement.

Instead of ruling against the restaurant, the Commissioner recognized the mismatch could distort the sample and gave the taxpayer 60 days to gather and submit documentation proving the correct amount of tax was remitted, together with invoices for the contested asset acquisitions. Field audit staff will review the documentation and, if revisions are warranted, issue revised bills (with interest on any remaining balance).

What this means for you

Businesses on a 52-53 week fiscal year

Virginia permits fiscal-year reporting, but you must attach the explanatory statement to your first return under that period and make sure each return captures all accounting periods ending within it. If you don't, a routine monthly audit sample can appear to show underreporting even when your annual totals reconcile.

If a sample looks wrong, bring the reconciliation

The path to relief is documentation reconciling your daily sales and your actual remittances across your real reporting periods -- not just an assertion about the calendar. Here the taxpayer got 60 days to produce it.

Keep asset invoices

Missing invoices led to use tax on fixed assets; supplying them within the window can remove those items.

Common questions

Is a 52-53 week reporting year allowed in Virginia? Yes, under 23 VAC 10-210-480 -- but you must attach an explanatory statement to your first return under that period and include all accounting periods that end within each return.

Did the restaurant win? Not yet -- the Commissioner gave it 60 days to prove the correct tax was remitted; the audit will be revised if the documentation supports it.

What about the assessed assets? They were assessed for missing invoices; the taxpayer can submit invoices within the same 60-day window for review.

Citations and references

• 23 VAC 10-210-480 -- 52-53 week fiscal-year reporting for sales tax dealers, including the first-return explanatory-statement requirement.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 20-93

Original ruling text

May 27, 2020

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 assessments issued for the period September 2012 through August 2015. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer operates a fast food restaurant in Virginia. The Department’s audit disclosed that the amount reported on the Taxpayer’s sales returns was underreported from the daily sales information provided by the Taxpayer. The difference between the returns and daily sales reports was recorded in the audit as sales tax collected and not remitted. In addition, fixed assets were assessed use tax in the audit due to missing invoices.

The Taxpayer contests the assessment for tax collected and not remitted on the basis that the audit does not accurately reflect the total amount of sales tax remitted by the Taxpayer for the periods in question because the Taxpayer operates under a 52-53 week fiscal year. The Taxpayer states that it remitted sales tax based on 13 four-week periods throughout the year, not 12 calendar months. Because of this, the Taxpayer believes the sample periods selected for the audit do not correspond to the sales and sales tax reported by the Taxpayer during the audit period. The Taxpayer also requests additional time to provide invoices for certain asset acquisitions.

DETERMINATION

Title 23 of the Virginia Administrative Code 10-210-480 provides:

In the case of dealers regularly keeping books and accounts on the basis of an annual period that varies 52 to 53 weeks, reporting consistent with such account period is acceptable, provided a satisfactory explanatory statement is attached to the dealer’s first return filed under such annual period. Each return filed by these dealers must include all accounting periods which end during the period covered by the return.

It appears the Taxpayer did not provide an explanatory statement with its first return filed under the periods covered by the audit. The auditor reconciled the Taxpayer’s daily sales reports to the sales tax returns filed by the Taxpayer and found that the amounts reported on the sales tax returns were underreported from the daily sales information that was provided. However, the Taxpayer states that because it remits sales tax based on 13 four-week periods throughout the year, instead of the more common 12 periods, the audit findings do not accurately reflect the total amount of sales tax remitted by the Taxpayer.

Based on a review of the audit, I will grant the Taxpayer an additional 60 days from the date of this letter to gather documentation to submit for review. All documentation required to prove that the correct amount of tax was remitted to the Department, and invoices for asset acquisitions should be submitted at the same time within the 60-day period. The documentation submitted by the Taxpayer will be reviewed by the appropriate field audit staff. If revisions are made, the Taxpayer will be issued revised bills with updated interest to date if any outstanding assessment balances remain. The bills should be paid within 30 days of the bill dates to avoid the accrual of additional interest charges.

The regulation cited is available online at www.tax.virginia.gov in the Laws, Rules, and Decisions of the Department’s website. If you have any questions about this matter, please contact * in the Department’s Office of Tax Policy, Appeals and Rulings at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1489H