I submitted an offer in compromise instead of a formal appeal after my sales tax audit assessment -- when the offer was rejected years later, can I still appeal the original assessment?

Plain-English summary

A business that renovates historic Virginia homes was audited for the period September 2012 through August 2018 and assessed sales and use tax and interest on untaxed purchases, with the assessment dated December 7, 2018. Rather than filing a formal administrative appeal within the required window, the taxpayer submitted an offer in compromise, proposing to settle the assessment for less than the full amount. The Department eventually rejected that offer because the taxpayer hadn't shown "doubtful liability" (i.e., a genuine dispute about whether the tax was actually owed). Only after the offer fell through -- and after paying the assessment in full -- did the taxpayer file an administrative appeal, on January 10, 2022.

That appeal came far too late. Virginia Code § 58.1-1821 requires a complete administrative appeal within 90 days of the assessment date, and the Department's regulations describe that deadline as strictly enforced. The taxpayer had actually been told about the 90-day deadline twice -- in the audit closing letter and in email correspondence from audit staff -- and had also received the Taxpayer Bill of Rights, which spells out the strict enforcement of that window. Submitting an offer in compromise instead doesn't pause or substitute for that deadline; the offer-in-compromise process runs on its own timeline, separate from (and not subject to) the 90-day appeal statute of limitations. The Department also rejected the taxpayer's apparent argument that a December 2021 letter reset the clock: that letter was just a copy of the existing bill, not a new assessment, so it didn't create a fresh 90-day window. With the assessment already paid in full and the appeal untimely, the Department found the assessment correct as issued and took no further action.

What this means for you

Taxpayers who receive an assessment they disagree with, and are considering an offer in compromise

An offer in compromise addresses whether you should pay less than the full assessed amount (typically for doubtful liability or doubtful collectibility) -- it does not pause, extend, or substitute for the separate 90-day deadline to formally appeal the assessment itself under Va. Code § 58.1-1821. If you want to preserve your right to dispute the assessment on the merits, file the formal appeal within 90 days regardless of any offer in compromise you're also pursuing.

Anyone who gets a later letter restating a bill they already owe

A letter that's simply a copy of, or reminder about, an existing bill is not a new assessment and does not restart the 90-day appeal clock. If you want to challenge the underlying liability, count your 90 days from the original assessment date, not from any later correspondence about the same debt.

Businesses in industries (like historic renovation) with complex taxable/exempt purchase categories

Audit assessments on untaxed purchases can be substantial across a multi-year audit period; if you believe specific purchases were wrongly taxed, act within the 90-day window rather than pursuing a settlement route first, since a rejected offer in compromise won't revive your appeal rights on the merits.

Common questions

Q: Does filing an offer in compromise stop the clock on my right to appeal the assessment?
A: No. The offer in compromise process runs separately and doesn't follow the 90-day appeal deadline, but it also doesn't pause that deadline -- if the offer is later rejected, you can't then file a late appeal of the original assessment.

Q: I got a letter years after my assessment that just restated what I owed -- does that give me a fresh 90 days to appeal?
A: No, if it's just a copy of the existing bill rather than a new assessment. Only an actual new assessment date starts a new 90-day appeal window.

Q: I already paid the assessment in full -- can I still get a refund if I later realize I disagreed with it?
A: This ruling doesn't address a separate refund claim; it addresses only the timeliness of an administrative appeal under Va. Code § 58.1-1821, which was barred here regardless of payment status.

Citations and references

• Va. Code § 58.1-1821 (90 days from the assessment date to apply for correction to the Tax Commissioner; application must fully set forth the grounds and facts relied on)
• 23 VAC 10-20-165 (a complete appeal must be filed with the Department within 90 days of the assessment date)

Subject

Statute of Limitations - Taxpayer did not file a timely appeal

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-122

Original ruling text

August 3, 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 September 2012 through August 2018. I note that the assessments at issue have been paid in full.

FACTS

The Taxpayer renovates historic homes in Virginia. As a result of an audit for the period at issue, the Taxpayer was assessed tax and interest due on untaxed purchases. The Taxpayer submitted an offer in compromise to settle the assessment for less than the amount due. The Department sent a letter rejecting the offer in compromise because the Taxpayer failed to show doubtful liability with respect to the assessments at issue. The Taxpayer now submits an administrative appeal.

DETERMINATION

Statute of Limitations

Virginia Code § 58.1-1821 states, “[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. Such application shall be in the form prescribed by the Department and shall fully set forth the grounds upon which the taxpayer relies and all facts relevant to the taxpayer’s contention.” Pursuant to Virginia Code § 58.1-1821 and Title 23 of the Virginia Administrative Code (VAC) 10-20-165, a complete appeal must be filed with the Department within 90 days from the date of assessment.

The Taxpayer was made aware of the 90-day limitation to file an appeal in the audit closing letter and email correspondence from the audit staff. The Taxpayer was also provided The Taxpayer Bill of Rights which clearly states the 90-day limitation is strictly enforced. The Taxpayer chose to submit an offer in compromise instead of filing an appeal. The Department’s offer in compromise process does not adhere to a 90-day statute of limitations requirement for submission.

The date of the Taxpayer’s assessments was December 7, 2018. The Taxpayer did not submit an administrative appeal until January 10, 2022. Therefore, the Taxpayer’s appeal application pursuant to Virginia Code § 58.1-1821 is barred by the statute of limitations. It is noted that the correspondence received by the Taxpayer dated December 21, 2021 was a copy of the bill and does not constitute a new date of assessment for purposes of determining the statute of limitations to submit an administrative appeal.

CONCLUSION

Based on the authorities cited above, the assessments are correct as issued. No further action is required, as the assessments have been paid in full. 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/4061.G