§ 8a.6. Selection of sample.
When a test audit is employed, the selection of the block sample, statistical sample or clustered sample shall be based on the Department’s analysis of the taxpayer’s business operations and records, and shall reasonably represent the population from which the sampled transactions were selected. The Department may utilize stratification levels in performing statistical sampling. When a block sample method is chosen, the Department will select blocks whose average is approximately equal to the estimated average of key characteristics for the audit period. Examples of key characteristics include sales, taxable to gross sales ratio, purchases or number of transactions.
(1) In determining whether to exclude the values of certain transactions from the sample, the Department will identify the transactions in the sample that are outliers.
(2) For the purpose of identifying outliers, the Department will determine the transaction difference for each transaction in the sample. The transaction difference shall be the difference between the transaction’s audited value and its value reported to the Department. Any transaction difference with an absolute value greater than 2% of the total audited amount of the total sample shall be considered to be a suspected outlier. If the difference is no greater than 2% of the total audited amount of the total sample, no adjustment will be made. If the difference is greater than 2% of the total audited amount of the total sample, the following test will be done: Subtract the average of the transaction differences, omitting the suspected outlier, from the suspected outlier and divide by one-fourth of the range in values of the transaction differences, omitting the suspected outlier. If the absolute value of the ratio is four or greater, the suspected outlier shall be confirmed as an outlier. If there is more than one suspected outlier, this test shall be applied sequentially to all suspected outliers. If the population is stratified this process will be completed for each stratum in which sampling has been done.
(3) The following steps will be taken with respect to all confirmed outliers:
(i) The taxpayer will be notified concerning the outliers and requested to furnish evidence that will be considered by the auditor in determining the audited finding. If, upon examining the further evidence, the auditor agrees that a smaller difference between the reported amount and the audited amount is justified, the auditor will replace the original transaction by the adjusted finding.
(ii) If sufficient evidence is not provided, the outlier will be eliminated from the sample and audited independently. The audit finding on the outlier will be computed separately and the audit finding will be added to or, if negative, subtracted from the result of the projection for the remaining sample.
(iii) The sample values, adjusted for outliers as provided in subparagraphs (i) and (ii), will be used for projection of the total audit finding and its standard error.
(4) When determining whether to employ the test audit method in an audit of a tax under 75 Pa.C.S. § § 9601—9622, (relating to motor carriers road tax) or a similar tax which may be enacted, the Department will consider the following factors:
(i) The average fleet mileage as reported by the taxpayer.
(ii) Whether the vehicles are company-owned, permanently leased from owner-operators, or a combination of both.
(iii) The types of vehicles that make up the fleet.
(iv) The type of fuel used to power the vehicles.
(v) The geographical area in which the vehicles operate.
(vi) The type of commodities being hauled.
(vii) The total number of vehicles in the taxpayer’s fleet.
(viii) The adequacy and availability of the taxpayer’s records.
(ix) Whether the taxpayer’s business is cyclical or seasonal.
(x) Whether significant changes in the taxpayer’s business or activities occurred during the audit period, such as discontinuing or adding a line of business.
(xi) Other relevant factors.
(5) When employing a test audit method in an audit of a State or local Sales and Use Tax or Hotel Occupancy Tax or Public Transportation Assistance Tax (72 P. S. § § 7201—7282 and 9301; 53 P. S. § § 12720.501—12720.509; 16 P. S. § § 6150-B—6157-B) or a similar tax which may be enacted, the Department will consider the following factors:
(i) The average gross sales.
(ii) The ratio of taxable sales to gross sales.
(iii) Whether the taxpayer’s business is cyclical or seasonal.
(iv) Whether significant changes in the taxpayer’s business or activities occurred during the audit period, such as discontinuing or adding a line of business.
(v) The adequacy and availability of the taxpayer’s records.
(vi) Other relevant factors.
Cross References This section cited in 61 Pa. Code § 8a.7 (relating to statistical estimation and software).
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