Virginia Sales and Use Tax Penalties

Be alert. The Virginia Department of Taxation has taken the position that if at the end of an audit there is a tax owed a penalty will be assessed under Section 58.1-635. There is a problem with the Department’s logic. The statute reads as follows:

“A. When any dealer fails to make any return and pay the full amount of the tax required by this chapter, there shall be imposed, in addition to other penalties provided herein, a specific penalty to be added to the tax in the amount of six percent if the failure is for not more than one month, with an additional six percent for each additional month, or fraction thereof, during which the failure continues, not to exceed thirty percent in the aggregate.”

This has the conjunctive word “and”. That means that a penalty can only be assessed if the dealer fails to file any return and fails to pay the full tax.

Therefore, the penalty should not be assessed under this section in a situation where a return is filed, is audited, and a tax is deficiency is found. However, the Commissioner has viewed it another way.