I was converted a responsible officer for my restaurant company's unpaid sales tax, and I have records that would lower the assessment -- but I haven't been able to get them together yet. Can I still get the assessment corrected?

Plain-English summary

A restaurant company racked up unpaid sales and use tax across various periods in 2018-2019, and when it failed to pay, the Department converted the delinquent liability to its president and minority shareholder personally, as a "responsible officer" under Virginia's officer-liability statute. Unlike some other rulings in this corpus, this taxpayer didn't dispute that he could properly be held responsible for the company's debt -- instead, he appealed only the underlying assessment amount, saying he had documentation that would show it was too high.

Virginia dealers are required to keep suitable sales, lease, and purchase records, and when a dealer's records are inadequate, the Department can use the best information available to reconstruct the liability. That's exactly what had happened to the company's assessment, since the necessary records apparently weren't available at the time of the audit. On appeal, the taxpayer said he was still gathering the supporting documentation and asked for 30 days to submit it -- but as of the date of this ruling, nothing had actually arrived. Because a Department assessment is presumed correct and the burden falls on the taxpayer to disprove it, the Department had no basis to adjust the amount and upheld it as issued.

The ruling didn't close the door entirely: if the taxpayer eventually locates the records, he can still file corrected returns to adjust the liability. But the Department flagged an important practical wrinkle -- Virginia's statute of limitations to claim any resulting refund runs three years from the original due date of the return, so delay in producing the records could eventually cost the taxpayer the ability to recover an overpayment even if the records ultimately support a lower liability.

What this means for you

Anyone converted a "responsible officer" for a company's unpaid tax who has documentation to contest the amount

Saying you have records and requesting time to gather them isn't enough on its own -- you actually have to submit them before a decision issues. An open-ended promise to follow up won't move the burden of proof off of you.

Any business owner or officer sitting on records that could reduce an assessment

Don't wait to gather documentation until you're deep into an appeal. This ruling shows that even a taxpayer who plausibly HAD helpful records lost simply because the records weren't actually produced in time.

Anyone who eventually finds records supporting a lower liability after an assessment becomes final

You can still file corrected returns to adjust the liability -- but keep Virginia's three-year refund statute of limitations (running from the original return's due date) firmly in mind, since that clock doesn't pause while you're searching for paperwork.

Common questions

Q: If I tell the Department I have documentation but need more time, will my assessment be put on hold?
A: Not indefinitely, based on this ruling. The taxpayer requested 30 days and never actually submitted anything, and the Department proceeded to uphold the assessment because the burden of proof was never met.

Q: Can I still fix an assessment after it becomes final if I later find the right records?
A: Yes -- this ruling notes that corrected returns can be filed later to adjust the liability. Just be aware of Virginia's three-year refund statute of limitations, which runs from the original due date of the return, not from when you locate your records.

Q: What records does a Virginia dealer need to keep to support its sales tax filings?
A: Va. Code § 58.1-633 requires dealers to keep suitable records of sales, leases, and purchases, along with any other books of account or information the Tax Commissioner may require to verify the tax due.

Citations and references

• Va. Code § 58.1-633 (dealers must keep suitable records of sales, leases, and purchases)
• Va. Code § 58.1-618 (Department may use best information available when a dealer's records are inadequate)
• Va. Code § 58.1-205 (1) (an assessment is prima facie correct; burden of proof on the taxpayer)
• Va. Code § 58.1-1823 (an amended return/refund claim must be filed within three years of the original return's due date)
• 23 VAC 10-210-3040 (sales tax refunds to dealers barred unless requested within three years of the return's due date)

Subject

Estimated Assessments : Records

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-10

Original ruling text

January 18, 2022

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

Dear *:

This is in response to your letter in which you seek correction of the retail sale and use tax assessment converted * (the “Taxpayer”) as a result of liabilities incurred by *** (the “Company”) for various periods between October 2018 and December 2019.

FACTS

The Taxpayer was president and minority shareholder of the Company, which was engaged in the operation of a restaurant in Virginia. During the periods at issue, the Company incurred unpaid sales and use tax liabilities, which resulted in assessments against the Company. Thereafter, the unpaid tax liabilities of the Company were converted to the Taxpayer as a responsible officer pursuant to Virginia Code § 58.1-1813. The Taxpayer appeals, contending that he has documentation to adjust the underlying retail sales and use tax assessments to the Company.

DETERMINATION

Virginia Code § 58.1-633 states that every dealer required to make a return and collect sales tax "shall keep and preserve suitable records of the sales, leases, or purchases. . . taxable under this chapter, and such other books of account as may be necessary to determine the amount of the tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner.” When a dealer fails to maintain adequate records, the Department is authorized by Virginia Code § 58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists.

The Taxpayer was unable to provide documentation on which to base the assessments to the Company. In his appeal, the Taxpayer indicates that such information was being collected. The Taxpayer requested 30 days from the date of the letter, July 27, 2021, to submit the information. As of the date of this letter, the Taxpayer’ has failed to provide the information pursuit to his request.

Virginia Code § 58.1-205 1 deems any tax assessment issued by the Department as prima facie correct. This means that the burden of proof is upon the Taxpayer to prove that the assessment is incorrect. The Taxpayer has not met this burden, and the tax liability assessed to the Company and converted to the Taxpayer is upheld. In the event the Taxpayer is able to location said records, corrected returns should be filed with the Department in order to adjust the liability.

The Taxpayer should be aware of the approaching statute of limitations to receive a refund due to the filing of a return. Virginia Code § 58.1-1823 states in pertinent part that “Any person filing a tax return or paying an assessment required for any tax administered by the Department of Taxation may file an amended return ... three years from the last day prescribed by law for the timely filing of the return....” Title 23 of the Virginia Administrative Code 10-210-3040 addresses the refund of sales tax to dealers and provides, in pertinent part, that “Refunds cannot be authorized unless the request is made within three years from the due date of the return.”

The Code of Virginia sections and regulations 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 response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3884.A