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August 4, 2008 Tax
Commissioner Re:
Barron
D. Freeburger, Freeburger Custom Cabinetry, L.L.C. Dear Sir or Madam: This letter serves as my appeal of your Report of Field Audit, Bill No. 55634. I am appealing this bill because your auditors have changed my tax status from a contractor to a retailer. I cannot believe anyone would think this. To this day, all CPAs and tax attorneys that I have spoken with have all thought it was ridiculous to classify me as a retailer. I even spoke with Mr. Chavis with the Better Business Bureau regarding this matter, and he couldn’t believe I was being classified as a retailer. If the general public doesn’t understand this classification, why would you think I would possibly know this? When I began my business 11 years ago, I asked your department under what classification I should operate. I called your office for three days, trying to get someone to answer this simple question: Am I a contractor or a manufacturer?, never occurring to me to even consider I could be classified as a retailer. After two days of either no responses from your office or conversations with anyone who could answer this question, I demanded on the third day that someone answer the question. I admit I forced the answer from someone who didn’t want to give me an answer. They replied that I was a contractor. It is unfortunate that I cannot give you the person’s name, since I didn’t keep a record of this conversation. When I suggested to Tim Harris of your Appeals Department that we had case history, he replied that his records wouldn’t go back that far. He asked me if I could come up with the date and tax i.d. number so maybe they could research it, but because it has been so long, the former owner no longer has the information. When I purchased this company from the previous cabinet shop owner, his classification was contractor. Approximately in the early 1990’s, the Department of Taxation did an audit on that company, which was called Bowling Custom Cabinets. The finding at that time was not a reclassification but an adjustment of back taxes on materials that came from out of state for which Virginia taxes were not paid. I have been paying sales and use tax on all materials bought in the Commonwealth of Virignia since the day I began operations. I have in no way tried to avoid paying taxes correctly. From the beginning of this nightmare, your office and the office of the auditors have neither been sympathetic nor professional. All this began with a phone call stating they wanted to come in and look at my receipts in order to “save me money” by filling out a monthly use and sales tax report. After the initial walkthrough, Karen Sayer, an inexperienced trainee by her own admission, said she was still learning the ropes of the trade and how excited she was constantly learning from her mistakes. I was informed by Mr. Mason, Karen’s supervisor, that after the audit was done, Karen would bring me the findings and go over them with me. Instead, she directly turned it into a bill, which arrived at my office in the mail three weeks after the last time she asked for information. At that time, the bill was $102,000 of back taxes and interest. I immediately called Karen but could only leave a voicemail message. The following day, I called her again and left another voicemail, never receiving a reply. On Friday, the third day, I called Karen and her trainer, Benjamin Uzel, and left them both voicemails. Benjamin did returned my call, however several hours later. I complained about the bill and that I had been trying to get in touch with Karen to ask about the review we were supposed to have, Benjamin replied that he would try to get in touch with her. Still no reply was received from Karen. I called her and Mr. Mason again late Friday afternoon, but could only leave additional voicemails. Over the weekend, I received a second bill from your department labeled “Field Audit Uncontested.” It wasn’t until Monday that I finally received a returned called from Mr. Mason. It was then that I asked him what the procedure should have been going through an audit. Mr. Mason told me that a final finding should have been reviewed in person with me before the audit was submitted for billing. I told Mr. Mason that was not what had happened. I felt it very unprofessional to basically drop a “death sentence” of $102,000 out of the blue on my company and not be able to respond or get in touch with anyone for five days. Mr. Mason agreed that it should not have happened and that he was asking Karen to come back over to my office to review the findings and possibly adjust some of the additional taxes that we did pay that were deductible. I believe it was the following Wednesday when Karen and Benjamin came back to the shop to go over some of the findings. During that meeting, Karen said “I will adjust these numbers and go over the findings with you by Friday, because the bill had to be submitted by the end of the month (June). I made special arrangements to stay in my office the entire day Friday to be available for Karen and this review, but, once again, neither Karen nor Benjamin showed up. Again, no adjusted bill was ever reviewed with me; however, I did receive an adjusted bill of $82,000 in the mail. The first time they discussed changing my classification to a retailer, they said there was a three-pronged test. First, Karen said because I have a facility, a showroom and inventory, I classify as a retailer. I immediately disputed that I have a showroom. On the second visit when Karen brought Benjamin to verify my retail classification, Benjamin asked me about a supply board and a knob board that I have, how I use them, implicating the showroom issue. After a few days of pursuing the showroom issue, I continued to ask what their definition of a showroom was. It was at that time that Benjamin said “Why are you worried about a showroom? We aren’t.” He said that my new three-pronged test was facility, inventory and that I install cabinets. My reply was that I don’t have inventory but working capital that I bought only for the job. When I asked what the definition of inventory was to Tim Harris, he replied, “We don’t have a definition, but we could look it up in the dictionary.” I then asked how you can have guidelines without definitions regarding inventory. I was never provided with a clear inventory definition. I still maintain that I do not buy inventory and I do not sell my working capital to the public. In conclusion, do not believe that I fit in any way the definition of a retailer. However, in order to comply, I have begun since July 1 operating as a retailer in submitting sales and use tax forms monthly. I believe based on the information and especially the inforamtion from your office 11 years ago, that if my tax entity should change to retailer, it should begin as of July 1, 2008 and I should not be penalized for the past. When this audit started, I was under the assumption that you were looking for materials brought into this state for which tax had not been paid. In this case, we believe there would be a finding of back taxes owed of $4-6,000. With this in mind, I am sending an $8,000 check with this appeal to cover the back taxes when I was a contractor. Please contact me immediately with your questions and concerns. Sincerely, Barron D. Freeburger |