Virginia – Audit Assessment Based on Taxpayer’s Business License Upheld

SALT Report 2020 – The Virginia Tax Commissioner upheld a sales and use tax assessment against an automotive repair business. The assessment came as a result of an audit in which it was found that the Taxpayer had not filed sales tax returns for several years.  In situations like this, Virginia Code § 58.1-633 allows an auditor to use the best information available to determine tax liabilities. In this case, the auditor relied on the Taxpayer’s business license information.

The Taxpayer disagreed with the auditor’s use of its business license information as a basis for the assessment and filed a request for redetermination. In its request, the Taxpayer stated that the business closed in 2005 and was no longer operational. Further, he claimed that the business license was only kept active to ensure that the location remained zoned for business.

In its decision, the Commissioner stated that 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 recreate a Taxpayer’s sales or purchases and determine whether a tax liability exists.

The Commissioner notes that the Taxpayer had been contacted several times to review the sales information that the Taxpayer said he had.  However, the Taxpayer never supplied appropriate or valid data that would enable a review of its sales.  Additionally, the Taxpayer claimed that its business was closed; however, several visits by the auditor to the Taxpayer’s business address revealed that the business was in fact open and operational.

Based on the above facts, the Commissioner ruled that the Taxpayer failed to prove that the original assessment was erroneous. Therefore, the audit methodology was appropriate and there was no basis to revise the audit findings.

The Commissioner allowed the Taxpayer 45 days to provide the auditor with sufficient documentation that would help determine the actual tax liability for the audit period. If the Taxpayer does not provide the information within the allotted time, the assessment will be upheld and become due and payable.

For Further Information:

Virginia Department of Taxation – Ruling of Commissioner P.D. 12-213