Amend Senate File 261, as amended, passed, and reprinted by the Senate, as follows:
   1.  Page 5, before line 19 by inserting: 
   <Sec. ___.  Section 423.1, subsection 37, paragraphs b and c, Code 2011, are amended to read as follows:
   b.  The property is transferred to the user of the service in connection with the performance of the service in a form or quantity capable of a fixed or definite price value, or the property is entirely consumed in connection with the performance of the service purchased by the ultimate user.
   c.  The sale is evidenced by a separate charge for the identifiable piece of property unless the property is entirely consumed in connection with the performance of the service purchased by the ultimate user.>
   2.  Page 6, before line 13 by inserting: 
   <Sec. ___.  Section 423.37, Code 2011, is amended to read as follows:
   423.37  Failure to file sales or use tax returns —— incorrect returns —— auditing of records.
   1.  As soon as practicable after a return is filed and in any event within three years after the return is filed, the department shall examine it, assess and determine the tax due if the return is found to be incorrect, and give notice to the person liable for the tax of the assessment and determination as provided in subsection 2. The period for the examination and determination of the correct amount of tax is unlimited in the case of a false or fraudulent return made with the intent to evade tax or in the case of a failure to file a return subject to the limitations in subsection 4.
   2.
  a.  If a return required by this subchapter is not filed, or if a return when filed is incorrect or insufficient and the maker fails to file a corrected or sufficient return within twenty days after the same is required by notice from the department, the department shall determine the amount of tax due from information as the department may be able to obtain and, if necessary, may estimate the tax on the basis of external indices, such as number of employees of the person concerned, rentals paid by the person, stock on hand, or other factors.
   b.  The determination may be made using any generally recognized valid and reliable sampling technique, whether or not the person being audited has complete records, as mutually agreed upon by the department and the taxpayer. The department shall give notice of the determination to the person liable for the tax.
   c.  The determination shall fix the tax unless the person against whom it is assessed shall, within sixty days after the giving of notice of the determination, apply to the director for a hearing or unless the taxpayer contests the determination by paying the tax, interest, and penalty and timely filing a claim for refund. At the hearing, evidence may be offered to support the determination or to prove that it is incorrect. After the hearing the director shall give notice of the decision to the person liable for the tax.
   3.
  a.  The three-year period of limitation provided in subsection 1 may be extended by a taxpayer by signing a waiver agreement form to be provided by the department.
   b.  The agreement shall stipulate the period of extension and the tax period to which the extension applies.
   c.  The agreement shall also provide that a claim for refund may be filed by the taxpayer at any time during the period of extension.
   4.  Subject to the limitations of paragraphs “a” and “b”, the department shall have the right and duty to examine or cause to be examined the books, papers, records, memoranda, or documents of a taxpayer to verify the correctness of a return filed, estimate the tax liability, and asses tax of any taxpayer.
   a.  If a return is filed as required under this chapter, the right and duty of the department to examined records and assess tax under this subsection 4 is limited to:
   (1)  The period beginning three years prior to and ending on the due date of the return if there was not willful neglect of the filing requirements by the taxpayer.
   (2)  The period beginning seven years prior to and ending three years after the due date of the return if there was willful neglect of the filing requirements by the taxpayer.
   b.  If a return is filed as required under this chapter, the right and duty of the department to examine records and assess tax is limited to:
   (1)  The period beginning one year prior to and ending on the due date of the return if there was no willful neglect of the filing requirements or no substantial understatement of tax due by the taxpayer.
   (2)  The period beginning seven years prior to and ending three years after the due date of the return if there was willful neglect of the filing requirements or substantial understatement of tax due by the taxpayer.

   c.  For purposes of this subsection:
   (1)  “Willful neglect of the filing requirements by the taxpayer” means action or inaction by the taxpayer with the intent to evade tax.
   (2)  “Substantial understatement of tax by the taxpayer” means the tax liability reported by the taxpayer is 50 percent or less than the tax assessed by the department.>
   3.  By renumbering as necessary.

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COMMITTEE ON WAYS AND MEANS

SANDS of Louisa, Chairperson