Senate File 261 H-1650 Amend Senate File 261, as amended, passed, and 1 reprinted by the Senate, as follows: 2 1. Page 5, before line 19 by inserting: 3 < Sec. ___. Section 423.1, subsection 37, paragraphs 4 b and c, Code 2011, are amended to read as follows: 5 b. The property is transferred to the user of 6 the service in connection with the performance of 7 the service in a form or quantity capable of a fixed 8 or definite price value , or the property is entirely 9 consumed in connection with the performance of the 10 service purchased by the ultimate user . 11 c. The sale is evidenced by a separate charge for 12 the identifiable piece of property unless the property 13 is entirely consumed in connection with the performance 14 of the service purchased by the ultimate user . > 15 2. Page 6, before line 13 by inserting: 16 < Sec. ___. Section 423.37, Code 2011, is amended to 17 read as follows: 18 423.37 Failure to file sales or use tax returns —— 19 incorrect returns —— auditing of records . 20 1. As soon as practicable after a return is filed 21 and in any event within three years after the return 22 is filed, the department shall examine it, assess and 23 determine the tax due if the return is found to be 24 incorrect, and give notice to the person liable for the 25 tax of the assessment and determination as provided 26 in subsection 2 . The period for the examination and 27 determination of the correct amount of tax is unlimited 28 in the case of a false or fraudulent return made with 29 the intent to evade tax or in the case of a failure to 30 file a return subject to the limitations in subsection 31 4 . 32 2. a. If a return required by this subchapter is 33 not filed, or if a return when filed is incorrect or 34 insufficient and the maker fails to file a corrected 35 or sufficient return within twenty days after the 36 same is required by notice from the department, the 37 department shall determine the amount of tax due from 38 information as the department may be able to obtain 39 and, if necessary, may estimate the tax on the basis of 40 external indices, such as number of employees of the 41 person concerned, rentals paid by the person, stock on 42 hand, or other factors. 43 b. The determination may be made using any 44 generally recognized valid and reliable sampling 45 technique, whether or not the person being audited 46 has complete records, as mutually agreed upon by the 47 department and the taxpayer. The department shall give 48 notice of the determination to the person liable for 49 the tax. 50 -1- SF261.2573 (4) 84 tw/sc 1/ 3 #1. #2.

c. The determination shall fix the tax unless the 1 person against whom it is assessed shall, within sixty 2 days after the giving of notice of the determination, 3 apply to the director for a hearing or unless the 4 taxpayer contests the determination by paying the 5 tax, interest, and penalty and timely filing a claim 6 for refund. At the hearing, evidence may be offered 7 to support the determination or to prove that it is 8 incorrect. After the hearing the director shall give 9 notice of the decision to the person liable for the 10 tax. 11 3. a. The three-year period of limitation provided 12 in subsection 1 may be extended by a taxpayer by 13 signing a waiver agreement form to be provided by the 14 department. 15 b. The agreement shall stipulate the period of 16 extension and the tax period to which the extension 17 applies. 18 c. The agreement shall also provide that a claim 19 for refund may be filed by the taxpayer at any time 20 during the period of extension. 21 4. Subject to the limitations of paragraphs “a” 22 and “b” , the department shall have the right and duty 23 to examine or cause to be examined the books, papers, 24 records, memoranda, or documents of a taxpayer to 25 verify the correctness of a return filed, estimate the 26 tax liability, and asses tax of any taxpayer. 27 a. If a return is filed as required under this 28 chapter, the right and duty of the department to 29 examined records and assess tax under this subsection 30 4 is limited to: 31 (1) The period beginning three years prior to and 32 ending on the due date of the return if there was 33 not willful neglect of the filing requirements by the 34 taxpayer. 35 (2) The period beginning seven years prior to and 36 ending three years after the due date of the return if 37 there was willful neglect of the filing requirements 38 by the taxpayer. 39 b. If a return is filed as required under this 40 chapter, the right and duty of the department to 41 examine records and assess tax is limited to: 42 (1) The period beginning one year prior to and 43 ending on the due date of the return if there was 44 no willful neglect of the filing requirements or no 45 substantial understatement of tax due by the taxpayer. 46 (2) The period beginning seven years prior to and 47 ending three years after the due date of the return if 48 there was willful neglect of the filing requirements or 49 substantial understatement of tax due by the taxpayer. 50 -2- SF261.2573 (4) 84 tw/sc 2/ 3

c. For purposes of this subsection: 1 (1) “Willful neglect of the filing requirements by 2 the taxpayer” means action or inaction by the taxpayer 3 with the intent to evade tax. 4 (2) “Substantial understatement of tax by the 5 taxpayer” means the tax liability reported by the 6 taxpayer is 50 percent or less than the tax assessed 7 by the department. > 8 3. By renumbering as necessary. 9 ______________________________ COMMITTEE ON WAYS AND MEANS SANDS of Louisa, Chairperson -3- SF261.2573 (4) 84 tw/sc 3/ 3 #3.