My auditor estimated my sales tax assessment because I couldn't provide records during the pandemic -- can I still submit the documentation now to get the assessment corrected?

Plain-English summary

A business was audited for retail sales and use tax covering January 2016 through December 2021, but it didn't respond to the auditor's repeated requests for records needed to actually perform the audit. Under Va. Code § 58.1-618, the Department is authorized to reconstruct a dealer's sales or purchases using the best information available when a taxpayer doesn't provide adequate records -- here, that meant estimating gross receipts and expenses from the business's profit-and-loss statements, federal tax returns, credit card statements, and purchase invoices/receipts. The business appealed, explaining that the pandemic had prevented it from providing documentation during the audit, but that it now has the records available.

Virginia law requires taxpayers to keep suitable records for three years and make them available for inspection, and sales tax dealers specifically must keep records sufficient to determine the tax due. An assessment is presumed correct, and the taxpayer bears the burden of proving otherwise -- and Virginia law goes further, barring a court from granting relief where an erroneous assessment resulted from the taxpayer's own willful failure or refusal to provide required information. Even so, the Department didn't treat this business's pandemic-related documentation gap as disqualifying. Instead of denying the appeal outright, it gave the business a real second chance: the auditor would contact the business within 30 days to set a mutually agreed deadline for producing the previously-missing records, then review them and adjust the assessment as the documentation actually warrants. The appeal itself was closed administratively (since the real dispute is now about the records, not a legal question), but the business retains a further right to appeal within 90 days of any revised assessment if issues remain after that review. The one hard consequence: if the documentation isn't provided within the agreed timeframe, the original estimated liability becomes immediately due and payable.

What this means for you

Businesses that couldn't produce audit records on the auditor's original timeline

Even after an estimated assessment has been issued because you didn't provide requested records, you may still get an opportunity to submit that documentation for review and have the assessment adjusted -- particularly where there's a credible explanation (like a pandemic disruption) for the earlier gap, rather than an outright refusal to cooperate.

Sales tax dealers now able to produce previously unavailable records

Don't assume an estimated assessment based on the "best information available" is your final, fixed liability. Reach out and provide the actual underlying records (sales, purchase, and expense documentation) as soon as you're able -- the Department may use them to recompute your liability more accurately.

Anyone who ignores or repeatedly fails to respond to an auditor's document requests without a legitimate reason

The law specifically bars courts from granting relief where an erroneous assessment stems from a taxpayer's willful failure or refusal to provide required information -- a documented, good-faith obstacle (like a pandemic disruption) is treated very differently than simple non-cooperation, so be prepared to explain any delay.

Common questions

Q: I missed my chance to provide records during a sales tax audit -- is that assessment now final?
A: Not necessarily. As this ruling shows, the Department can give you a further, time-limited opportunity to submit the missing documentation for review and adjustment, especially where you have a credible explanation for the earlier gap.

Q: How long do I need to keep sales tax records?
A: Virginia law requires dealers to keep and preserve adequate and complete records for three years, sufficient to determine the tax due.

Q: What happens if I still don't provide the records within the new deadline the auditor sets?
A: The outstanding estimated liability becomes immediately due and payable -- the second chance isn't open-ended.

Citations and references

• Va. Code § 58.1-102 (duty to retain records substantiating tax returns for three years)
• Va. Code § 58.1-103 (records must be available for inspection by the Tax Commissioner or authorized agents during business hours)
• Va. Code § 58.1-633 A (sales and use tax dealers must keep and preserve suitable sales/purchase records)
• 23 VAC 10-210-470 (three-year recordkeeping requirement for sales and use tax purposes)
• Va. Code § 58.1-618 (Department may use the best information available to reconstruct a dealer's sales or purchases)
• Va. Code § 58.1-205 (a Department tax assessment is deemed prima facie correct)
• Va. Code § 58.1-1826 (courts may not grant relief where an erroneous assessment resulted from the taxpayer's willful failure or refusal to provide required information)
• P.D. 98-4 (1/4/1998), P.D. 16-75 (5/11/2016), P.D. 18-83 (5/9/2018), and P.D. 20-28 (2/7/2020) (prior rulings addressing estimated assessments where taxpayers failed to provide audit records)

Subject

Administration : Documentation - Required Taxpayer Records, Failure to Provide Information During Audit

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-108

Original ruling text

June 9, 2022

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 assessment issued for the period of January 2016 through December 2021.

FACTS

As the result of an audit, an assessment was issued for the audit period because the Taxpayer failed to provide records requested by the auditor for review. The Taxpayer filed an appeal contending it was not able to provide documentation at the time as a result of the pandemic. The Taxpayer states that it has available the documentation that was requested, but it was not able to provide them during the performance of the audit.

DETERMINATION

The General Provisions in Chapter 1 of Virginia Code § 58.1 govern all taxes administered by the Department of Taxation and provide the following in Virginia Code § 58.1-102:

It shall be the duty of every taxpayer to retain suitable records and documents substantiating all information contained on any return required by this subtitle and any such other pertinent records or documents as the Tax Commissioner may require by regulation. The records and documents shall be preserved for a period of three years from the required date for filing a return to which such records or documents pertain.

Virginia Code § 58.1-103 further provides that “All records and documents required by this subtitle or by rule or regulation shall be available during regular business hours for inspection by the Tax Commissioner or his duly authorized agents.”

Chapter 6 of Virginia Code § 58.1 specifically addresses the Virginia Retail Sales and Use Tax and requires in Virginia Code § 58.1-633 A that dealers “keep and preserve suitable records of the sales, leases, or purchases, as the case may be, taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner.” Title 23 of the Virginia Administrative Code 10-210-470 also provides for sales and use tax purposes that the taxpayer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”

The Tax Commissioner has previously addressed instances in which taxpayers failed to provide records for review by the Department and assessments were estimated based on the best available information. See, Public Document (P.D.) 98-4 (1/4/1998), P.D. 16-75 (5/11/2016), P.D. 18-83 (5/9/2018), and more recently P.D. 20-28 (2/7/2020).

In this instance, during the performance of the audit, the Taxpayer failed to respond to the auditor’s repeated requests for documentation in order to commence and perform the audit. Gross receipts and expenses were estimated using amounts from the Taxpayer’s profit and loss statements, federal tax returns, credit card statements and purchase invoice and receipts. The estimated assessment issued was issued to the Taxpayer in accordance with Virginia Code § 58.1-618, which authorizes the Department to use the best information available to reconstruct a dealer’s sales or purchases to determine whether a tax liability exists. In its appeal, the Taxpayer contends that it now has access to the documentation to support its contention that the assessment is incorrect.

Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed prima facie correct. The burden is on the taxpayer to prove the assessment is erroneous. In addition, Virginia Code § 58.1-1826 precludes a court from granting relief to taxpayers seeking correction of erroneous state tax assessments in cases in which the assessment was attributable to a taxpayer’s willful failure or refusal to provide the Department with necessary information as required by law.

Notwithstanding the forgoing, the Taxpayer will be given the opportunity to provide documentation for review by the Department’s auditor that was not provided during the performance of the audit. The Taxpayer will be contacted by the Department’s auditor within 30 days of the date of this letter to discuss the documentation that must be provided. The Taxpayer must provide all of the requested documentation in accordance with a mutually agreed upon deadline. The auditor will review the documentation and make adjustments, as appropriate; therefore, the appeal matter is being closed. 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 the documentation is not provided within the allotted timeframe stated above, the outstanding liability will become immediately due and payable.

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/4141.A

Related Documents

98-4

16-75

18-83

20-28