My sales tax audit closed before I could submit all my documentation -- can I still get more time to provide records on appeal, and what happens to unrelated bills I discovered separately while reviewing my online account?

Plain-English summary

A company that served as the purchasing agent for an owner's mobile communications operating companies -- purchasing and reselling or leasing hardware, software, and services to them -- was audited for sales and use tax for December 2008 through June 2013. The Department assessed tax where the wrong sales tax rate was charged, sales tax wasn't charged at all, or use tax wasn't accrued on untaxed purchases. The company appealed, arguing the audit concluded before it could submit all its supporting documentation, and asked for the chance to provide more.

Recordkeeping duties, and one more chance. Virginia's general recordkeeping rule (Va. Code § 58.1-102) requires taxpayers to keep records substantiating their returns for three years, and dealers specifically must keep suitable sales/use tax records available for Department inspection (§ 58.1-633 A; 23 VAC 10-210-470). The Department noted the company had already been given ample time during the audit itself but had provided only some of the requested documentation. Even so, the Department agreed to give the company one more opportunity: it would be contacted by the auditor and must provide the requested documentation within 10 business days, with any further requested materials due within 30 days -- after which the audit would be revised if warranted, but closed and made immediately payable if the deadlines weren't met.

Two unrelated bills, left for a different department. The company also raised two separate assessments -- unconnected to the audit -- that it said it never received and only discovered while reviewing its online account. Because these arose from ordinary processing of the company's sales tax returns rather than from the audit, the Department declined to address them in this ruling, directing the company to its Customer Services Division instead.

Penalty, interest, and the limits of relief. Penalty and interest are computed under Va. Code §§ 58.1-635 and 58.1-1812 and adjust automatically with any change to the underlying tax. The Department also reminded the company that an assessment is presumed correct (§ 58.1-205), with the burden on the taxpayer to prove otherwise, and that Va. Code § 58.1-1826 bars a court from granting relief where an erroneous assessment resulted from the taxpayer's own willful failure or refusal to provide required information.

What this means for you

Anyone whose sales/use tax audit closed before all documentation was submitted

You may get a further, but strictly time-limited, opportunity to provide records on appeal -- expect firm deadlines (here, 10 business days for an initial request, 30 days for any follow-up) and an audit that closes automatically if you miss them.

Anyone who discovers a bill or assessment unrelated to a pending audit while reviewing their online tax account

Raise it separately with the Department's Customer Services Division rather than folding it into an unrelated audit appeal -- a determination on the audit issues won't necessarily address bills that arose from ordinary return processing.

Common questions

Q: My sales tax audit closed before I could submit all my supporting records -- is that the end of the road?
A: Not necessarily. The Department may give you a further, time-limited window to provide documentation on appeal, but expect strict deadlines and an audit that closes automatically if you don't meet them.

Q: I found an unrelated tax bill on my online account while dealing with a separate audit appeal -- will this kind of ruling resolve that bill too?
A: Not if it's unconnected to the audit at issue. Bills stemming from ordinary return processing are typically handled by the Department's Customer Services Division, not folded into the audit appeal.

Citations and references

Statutes:

• Va. Code § 58.1-102 -- three-year record retention requirement for tax returns
• Va. Code § 58.1-633 A -- dealers must keep suitable sales/use tax records
• Va. Code § 58.1-205 -- Department assessments are prima facie correct
• Va. Code § 58.1-1826 -- courts may not grant relief where an erroneous assessment stems from the taxpayer's willful failure to provide required information

Related rulings in this corpus on documentation-driven audits (described here, not linked): P.D. 24-117, P.D. 24-118, and P.D. 25-3, involving estimated assessments after a taxpayer's failure to provide adequate records.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-39

Original ruling text

March 27, 2024

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 audit period December 2008 through June 2013. The Taxpayer also contests unrelated assessments issued for the periods July 2009 and October 2010. I apologize for the delay in responding to your letter.

FACTS

During the audit period, the Taxpayer was owned by * (the “Owner”) and served as the purchasing agent for the Owner’s operating companies. The operating companies provide interstate and intrastate mobile communications services, including Internet access, to customers in Virginia. The Taxpayer purchased and resold or leased, to the operating companies, various types of hardware, software, and services.

The Taxpayer was assessed tax on general expense purchases and assets in the audit. The documentation provided to the auditor was used to determine if the correct amount of tax was charged or accrued on the transactions. Sales or use tax was assessed in the audit in instances where the incorrect sales tax rate was applied, sales tax was not charged, and when use tax was not accrued for transactions that did not include the sales tax.

The Taxpayer filed an application for correction contending the audit was concluded prematurely and requests the opportunity to provide additional documentation. The Taxpayer believes that a review of the additional information will resolve the audit assessment. The Taxpayer also contests the two assessments that are unrelated to the audit assessment, and any future interest and penalty accruals.

DETERMINATION

Audit Assessment

The General Provisions in Chapter 1 of Title 58.1 of the Code of Virginia governs all taxes administered by the Department of Taxation and provides in Virginia Code § 58.1-102 that:

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 Title 58.1 of the Code of Virginia specifically addresses the Virginia retail sales and use tax. Under Virginia Code § 58.1-633 A, dealers are required to “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 (VAC) 10-210-470 also provides that a dealer is “required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability.”

The purpose of the sales and use tax audit is for the Department to determine a dealer’s sales and use tax compliance. As provided in the aforementioned authorities, the Taxpayer is required to maintain proper records and to provide them for inspection by the Department, such that the Taxpayer’s sales and use tax compliance can be determined. During the performance of the audit, the Taxpayer provided some, but not all of the documentation requested by the auditor for review. Based on the amount of time allotted to complete the audit, the Taxpayer was permitted ample time to provide all of the necessary documentation requested by the auditor.

The Taxpayer now seeks additional time to provide documentation it is required to maintain and have available for the Department to evaluate compliance with Virginia sales and use tax laws, regulations, and policies.

Notwithstanding the foregoing, the Taxpayer will be given the opportunity to provide additional information as requested. The Taxpayer will be contacted by the Department’s auditor and must provide the documentation to the auditor within ten business days of such contact. The auditor will advise the Taxpayer of the appropriate process for transferring the documentation for review. If the auditor requires any additional documentation or information from the Taxpayer, such documentation must be provided 30 days from the request. Revisions will be made to the audit and the audit assessment, if warranted.

Additional Assessments

The Taxpayer included two assessments in its application that are not related to the audit. The Taxpayer maintains that it never received these assessments and became aware of them while reviewing its online account. The assessments were issued as a result of the review and processing of sales tax returns submitted by the Taxpayer for the periods at issue. Because the issues with these assessments are not related to the issued contested by the Taxpayer, they will not be addressed in this determination.

The Department’s Customer Services Division can address questions concerning the review and processing of the subject sales tax returns. Accordingly, the Taxpayer should contact that unit to discuss the bills at issue. It is my understanding that the Taxpayer has been provided with a point of contact and contact information.

Penalty and Interest

Penalty is assessed in accordance with Virginia Code § 58.1-635 and Title 23 VAC 10-210-2032. Interest is assessed in accordance with Virginia Code § 58.1-1812 at rates established under Virginia Code § 58.1-15. These charges will be adjusted based on any adjustments to the tax.

CONCLUSION

As indicated above, the Taxpayer will be given the opportunity to provide additional documentation for review with respect to the issues assessed in the audit. If the documentation is not provided within the allotted timeframe, the audit will be closed, and the outstanding liability will become immediately due and payable.

The Taxpayer is reminded that, under the provisions of Virginia Code § 58.1-205, in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayer to show that the assessment was erroneous. Further, 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 erroneous assessment is attributable to the taxpayer’s willful failure or refusal to provide the Department with necessary information as required by law.

The Code of Virginia sections and regulations cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at , or via email at **.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/3569C