What happens if a Virginia taxpayer appeals a sales and use tax audit assessment but the appeal letter does not allege specific errors or cite any legal authority?

Subject

Administration: Audit - revision, Appeal - incomplete

Plain-English summary

A Virginia restaurant was audited for retail sales and use tax for February 2016 through June 2019. The audit found untaxed sales and untaxed purchases. The Taxpayer wrote to the Department seeking "clarification" of the revisions the auditor had already made based on documentation the Taxpayer had submitted, and attached that same previously reviewed documentation to its appeal letter.

The Tax Commissioner denied the appeal as incomplete. Under Va. Code § 58.1-1821, a taxpayer has 90 days from an assessment to apply to the Tax Commissioner for relief, but 23 VAC 10-20-165 requires that application to be a "complete appeal" -- one that alleges specific errors in the assessment, sets out the grounds and facts relied on, and cites the legal authority (statutes, regulations, rulings, case law) supporting the taxpayer's position. An incomplete appeal does not satisfy or extend the 90-day deadline. Because the Taxpayer's letter neither alleged any specific error nor cited any legal authority, it did not qualify as a complete appeal, and the Commissioner denied it on that procedural ground alone.

Even though the appeal was procedurally deficient, the Commissioner went on to explain why the audit was correct anyway. The auditor had used 2017 as the purchases sample period, but many of the invoices the Taxpayer submitted were from 2015, 2016, and 2018 -- the wrong years to support the 2017 sample -- and some invoices showed taxable items with no tax paid. Invoices that did show proper taxation were removed from the exceptions list. Separately, the difference between the draft and final assessment amounts was explained by underreported gross sales, discovered by comparing the Taxpayer's ST-9 sales tax returns against its own general ledger for 2016, 2017, and 2018. The auditor had already given the Taxpayer multiple deadlines and a post-audit conference to submit documentation, so the Commissioner also declined the Taxpayer's request for a further conference, since no complete appeal or new documentation had been submitted. The assessment was upheld as correct, with an updated bill to follow and interest to stop accruing if paid within 60 days.

What this means for you

Businesses appealing a Virginia tax assessment

A letter to the Department that merely asks for "clarification" or attaches documents the auditor already reviewed is not enough to preserve your appeal rights. To make a complete appeal under 23 VAC 10-20-165, you must affirmatively allege the specific errors in the assessment, explain the grounds and facts you rely on, and cite the statutes, regulations, rulings, or case law that support your position. Skipping any of that risks having the whole appeal denied as incomplete, regardless of the merits.

Why the 90-day deadline matters

Va. Code § 58.1-1821 gives you only 90 days from the date of assessment to apply for relief. Filing something within that window is not enough by itself -- 23 VAC 10-20-165 D 4 makes clear that an incomplete appeal (or a mere notice of intent to appeal) does not satisfy or extend the 90-day period. If your first submission is incomplete and the deadline passes before you fix it, you may lose your chance to appeal at all.

Submitting audit documentation

If an auditor already reviewed your invoices and other records during the audit and made revisions based on them, resubmitting the same documents in your appeal letter, without more, will not restart that review. Here, the auditor had given the Taxpayer multiple deadlines and a post-audit conference to submit records before finalizing the audit; the Commissioner treated that as sufficient opportunity and would not grant a further conference absent a complete appeal or genuinely new documentation. Also make sure any invoices you rely on actually correspond to the sample period the auditor used -- invoices from the wrong year were rejected here as not probative of the specific sample-year transactions at issue.

Common questions

Q: Why was this appeal denied without the Commissioner even reaching the merits?
A: Because the Taxpayer's appeal letter did not allege any specific errors in the assessment and did not cite any legal authority supporting its position. Under 23 VAC 10-20-165, that makes it an incomplete appeal, and an incomplete appeal does not satisfy the requirements of Va. Code § 58.1-1821 or extend the 90-day filing deadline.

Q: Did the Commissioner review the audit anyway?
A: Yes. Even after denying the appeal as incomplete, the Commissioner separately addressed the audit revisions and concluded the assessment was correct, based on invoices from the wrong sample years, taxable invoices with no tax paid, and underreported gross sales found by comparing the Taxpayer's ST-9 returns to its general ledger.

Q: Could the Taxpayer get a conference to discuss the audit further?
A: No. The Commissioner found that the auditor had already given the Taxpayer multiple deadlines and a post-audit conference to submit documentation, and the Taxpayer had not filed a complete appeal or provided any new documentation, so the request for a further conference was denied.

Q: What happens next for the Taxpayer?
A: An updated bill with accrued interest was to be mailed, and no further interest would accrue if the outstanding assessment was paid within 60 days of that bill.

Q: Does this ruling mean my own appeal will also be denied?
A: Not necessarily. This is a fact-specific ruling addressed to one taxpayer's particular letter and documentation. It illustrates the Department's complete-appeal requirements, but your situation may differ -- consult a Virginia tax professional about your own appeal.

Citations and references

Statutes:

• Va. Code § 58.1-1821 (90-day deadline to apply to the Tax Commissioner for relief from an assessment)
• 23 VAC 10-20-165 (guidelines for filing administrative appeals; defines a "complete appeal")
• 23 VAC 10-20-165 D 4 (an incomplete appeal or notice of intent to appeal does not satisfy or extend the 90-day limitation period)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-16

Original ruling text

February 16, 2021

Re: § 58.1-1821: Retail Sales and Use Tax

Dear *:

This is in response to your letter in which you seek clarification of the retail sales and use tax assessment issued to * (the "Taxpayer"), for the period of February 2016 through June 2019.

FACTS

The Taxpayer operates a restaurant in Virginia. The Department’s audit disclosed that the Taxpayer made untaxed sales and untaxed purchases. The Taxpayer seeks clarification of the revisions made to the audit based on documentation provided to the auditor. The Taxpayer includes the previously reviewed documentation with its appeal correspondence.

DETERMINATION

Complete Appeal

Virginia Code § 58.1-1821 states that "[a]ny person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner." Title 23 of the Virginia Administrative Code (VAC) 10-20-165 interprets Virginia Code § 58.1-1821 and sets out guidelines for the filing of administrative appeals. Subsection D 4 of this regulation states: "An incomplete appeal or notice of intent to appeal does not satisfy or extend the 90-day limitation period."

Title 23 VAC 10-20-165 A defines a "complete appeal" as "an administrative appeal containing sufficient information, as prescribed in subsection D of this section, so that the grounds upon which the taxpayer relies in contesting an assessment are fully set forth to allow the Tax Commissioner to make an informed final determination." Subsection D provides a list of the information required for a complete appeal. The required information includes alleged errors in the assessment, the grounds upon which the taxpayer relies and all facts relevant to the taxpayer's contention. In addition, taxpayers must provide the legal authority (statutes, regulations, rulings of the Tax Commissioner, court decisions, etc.) which is the basis for the taxpayer's position in the appeal.

In this instance, the correspondence submitted by the Taxpayer does not constitute a complete appeal. The correspondence neither alleges any errors in the assessment, nor provides any legal authority upon which the Taxpayer’s position is based. Because the Taxpayer has not alleged any grounds upon which the Department may act, the appeal must be denied as incomplete.

Revised Audit

While the Taxpayer did not provide any legal authority or alleged errors to provide for a complete appeal, I will address the revision of the audit. The auditor notes that many of the invoices submitted by the Taxpayer were not in the same sample year as the transactions listed on the exceptions list. The auditor used 2017 as the purchases sample period and the Taxpayer provided some invoices from 2015, 2016, and 2018. These invoices were not acceptable because they did not show proper taxation for the specific transactions in the sample year. Other invoices submitted by the Taxpayer included taxable items upon which no tax was paid on the invoice. There were some invoices reviewed by the auditor that showed proper taxation and these transactions were removed from the exceptions list.

In addition, the Taxpayer questions why the draft of the audit assessment was different from the final assessment amount. I would like to note that the difference between the estimated draft assessment and the final assessment the Taxpayer received was due to unsubstantiated differences between gross sales reported on its ST-9 returns and sales reported in the Taxpayer’s general ledger. The auditor concluded that the Taxpayer’s gross sales were underreported after comparing its ST-9 returns for 2016, 2017, and 2018 with its general ledger sales for each month of the year.

The Taxpayer requests a conference to discuss the audit results. It is my understanding that the auditor gave the Taxpayer multiple deadlines to respond to documentation requests. During a post-audit conference with the Taxpayer, the auditor allowed for a final review of documentation and the audit was revised according to the documentation received. The auditor explained to the Taxpayer that any additional documentation would have to be reviewed during an appeal due to the sufficient amount of time allowed for documentation review during the audit. The Taxpayer has not submitted a complete appeal with alleged errors and has not provided any new documentation for review. Accordingly, the Taxpayer’s request for a conference cannot be granted.

Based on this determination, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 60 days from the date of the bill.

The Code of Virginia section and regulation cited, along with other reference documents, 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 response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3420.G