United States: A "Mailbox Rule" For Assessments? Virginia Declares Tax Department Must Prove Mailing of Notice of Assessment

In Virginia, the heat is off the taxpayer and on the Department of Taxation to prove it delivered a written notice of assessment under Circuit City Stores, Inc. v. Commonwealth of Virginia, Dep’t of Taxation, No. LR-1204-3, 2004 Va. Cir. LEXIS 223 (Va. Cir. Ct. July 29, 2004). It would be impossible for a taxpayer to prove the opposite, that a document was never delivered, a Virginia court found.

The Court of the City of Richmond found that the burden of proof rests on the Department of Taxation to show that a written notice of assessment has been delivered. The court held that the Department failed to meet its burden in Circuit City Stores, Inc.’s challenge of a sales and use tax assessment.

The three-year statute of limitations ran out without the Department of Taxation delivering a written notice of assessment to Circuit City. Virginia Code section 58.1-634. By statute, Virginia requires assessments to be made by a written notice of assessment delivered to the taxpayer by a Department of Taxation employee or mailed to the taxpayer’s last known address.

The burden of proof rests on the Department because it is the party with the last control over the document. To prevail, the Department of Taxation must show that it delivered the document by some means, the court said.

The court refused to accept other later documents as a Notice of Assessment. Other documents sent by the Department of Taxation do not qualify as a Notice of Assessment

The Department of Taxation’s regulations require assessments be made on a form "clearly labeled ‘Notice of Assessment’ which sets forth the date of the assessment, amount of assessment, the tax type, taxable period and taxpayer." 23 V.A.C. 10-20-160(E)(3). Correspondence proposing adjustments, payment reports and additional statements following a notice do not meet the statutory requirements, according to the regulations.

The Department of Taxation did not provide any proof that the Notice of Assessment was ever even posted for mailing, much less delivered to Circuit City. Circuit City denied receiving the Notice of Assessment.

"From the evidence, the court believes all of Circuit City’s dealings with the Department were begun with and dependent upon the Audit Field Notes."

The Department argued that Circuit City must have received the Notice of Assessment because the company appealed it and referred to two different assessments in a letter to the Department of Taxation giving notice of the company’s intent to appeal. The court responded that the letter only proved Circuit City was aware of the assessment, not that the statutorily required Notice of Assessment had been delivered.

The Department of Taxation attempted to use a computer entry with an assessment date of April 30, 1999 to prove the notice was delivered. Representatives of the Department of Taxation said the notice was prepared, sent out for printing and mailed after the computer entry was made.

The Department also relied upon testimony about how a notice of assessment is normally prepared and mailed, but the court said the Department failed to "show what actually happened in this particular instance." Circuit City Stores, Inc. v. Commonwealth of Virginia, Dep’t of Taxation, No. LR-1204-3, 2004 Va. Cir. LEXIS 223, at *4 (Va. Cir. Ct. July 29, 2004). Because large assessments such as the $800,000 assessment against Circuit City were handled in a different manner than most assessments, the court expressed doubt that the notice was sent in the normal manner as the Department said it was.

The Department admitted it "does not have a copy of the Notice of Assessment, cannot produce any physical record that the Notice of Assessment was printed, pre-sorted, reviewed, inserted into envelopes, postage applied or deposited into the custody of the United States Postal Service and cannot produce a receipt issued, or bearing a post-mark of, the United States Postal Service," according to the court. Circuit City Stores, Inc. v. Commonwealth of Virginia, Dep’t of Taxation, No. LR-1204-3, 2004 Va. Cir. LEXIS 223, at *6 (Va. Cir. Ct. July 29, 2004).

The opinion’s last sentence reads: "Copies of this order are mailed this day to counsel of record." Wonder if they were sent return receipt requested and if they were received.

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