Tax Type
Retail Sales and Use Tax
Description
"Ship to" destination; Tax paid to another state; "First use"
Topic
Collection of Delinquent Tax
Property Subject to Tax
Date Issued
05-25-2000
May 25, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period January 1996 through December 1998. I apologize for the delay in our response.
FACTS
The Taxpayer is a travel agency with offices located throughout the United States, including Virginia. The Taxpayer makes a substantial amount of its purchases from its Virginia headquarters location. The department's audit disclosed that the Taxpayer failed to pay the Virginia tax on purchases of fixed assets and tangible personal property.
Generally, the Taxpayer disagrees with the department's assessment contending that the auditors made assumptions that the tax would apply to all bill payments made from the Virginia headquarters. The Taxpayer states that a centralized billing and asset control system is in place to manage bill payments for its many offices, and that it should not be assumed that all products are used or consumed in Virginia because the bills are paid out of the Virginia office.
In conjunction with the foregoing, the Taxpayer lists several invoices which it believes were subjected to the tax in error. Accordingly, the Taxpayer seeks an adjustment of the department's audit assessment.
DETERMINATION
First Use of Property in Virginia
Code of Virginia § 58.1-602 defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." This section further defines "use tax" as "the tax imposed upon the use, consumption, distribution, and storage as herein defined." "Storage" is defined as "any keeping or retention of tangible personal property for use, consumption or distribution in this Commonwealth, or for any purpose other than sale at retail in the regular course of business." (Emphasis added)
Based on this wording, and as related in prior correspondence, the Taxpayer makes a taxable use of tangible personal property which has been delivered to Virginia, regardless that the property may ultimately be deployed to other locations outside of Virginia. Additionally, the tax applies regardless if such property is purchased from Virginia vendors or from vendors located outside of Virginia. This is because the tax liability is triggered by the delivery of the property to Virginia. I have enclosed a prior ruling, Public Document (P.D.) 86-236 (11/19/86), which supports the department's longstanding position.
Regarding the Taxpayer's contention that the auditor's position was in error, the auditor reviewed the vendor invoices, and if the invoices provided that the "ship to" location was Virginia, and that no tax was included, that invoice was included in the audit. The auditor's comments provide that where the invoice did not reflect a "ship to" destination, an assumption was made that the tangible personal property was delivered to the Taxpayer's Virginia headquarters. The auditor states that the Taxpayer provided no documentation to contradict this assumption. Accordingly, with no specific documentation to refute the auditor's assessment, or the method in which the assessment was generated, l do not find cause to invalidate the audit methods employed.
Credit for Taxes Paid
Code of Virginia § 58.1-611, copy enclosed, allows a credit for taxes paid to another state, on property purchased in that state and used in the Commonwealth, and provided that the other state imposes a similar tax. Title 23 of the Virginia Administrative Code (VAC) 10-210-450, copy enclosed, further states that the credit does not apply to tax erroneously charged or incorrectly paid to another state. This same section provides an example wherein a person that purchases and takes delivery in Virginia of tangible personal property from an out-of-state dealer, who incorrectly charges the out-of-state tax, is not allowed a credit for that paid tax. The purchaser must then apply to the out-of-state dealer for a refund of erroneously paid taxes.
In this instance, the Taxpayer purchased supplies from out-of-state vendors and erroneously paid tax to those vendors on tangible personal property shipped to Virginia for temporary storage (i.e., subsequently shipped to the Taxpayer's other out-of-state locations). Accordingly, no credit is available for taxes erroneously paid, and the Taxpayer must pursue its refund from the vendor.
Specific Invoices
Bickett: Auditor comments provide that the invoices at issue reflected a Virginia "ship to" address. As a result, and unless the Taxpayer can provide documentation to the contrary, the auditor properly included these invoices in the audit assessment.
Computer and Telephone Equipment: This equipment was purchased from an out-of-state vendor and delivered to the Taxpayer's Virginia headquarters for subsequent shipment to its other out-of-state locations. As stated above, and as noted in previous audit correspondence with the Taxpayer, the delivery of the tangible personal property to the Taxpayer's Virginia headquarters constitutes a taxable first use. Accordingly, there is no basis for an adjustment of these items.
Unimark: See my remarks related to the granting of a credit for taxes paid. In this instance, the Taxpayer incorrectly paid another state's tax on property shipped to the Taxpayer's Virginia headquarters. Consequently, there is no basis to grant such a credit.
Sato, Wrap It, Ikea, Washington National Airport Hilton: There may be cause for an audit adjustment relating to these invoices; however, the auditor will need to see all of the documentation necessary to properly assess the taxable status.
I will have the department's auditor contact the taxpayer within ten days from the date of this letter ta schedule a review date. Once the auditor has reviewed all of the available information and determined if adjustments are appropriate, a revised audit report and assessment (with updated tax, penalty and interest) will be issued to the Taxpayer.
If you should have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22591Q
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in reply to your letter in which you seek a correction of the department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period January 1996 through December 1998. I apologize for the delay in our response.
FACTS
The Taxpayer is a travel agency with offices located throughout the United States, including Virginia. The Taxpayer makes a substantial amount of its purchases from its Virginia headquarters location. The department's audit disclosed that the Taxpayer failed to pay the Virginia tax on purchases of fixed assets and tangible personal property.
Generally, the Taxpayer disagrees with the department's assessment contending that the auditors made assumptions that the tax would apply to all bill payments made from the Virginia headquarters. The Taxpayer states that a centralized billing and asset control system is in place to manage bill payments for its many offices, and that it should not be assumed that all products are used or consumed in Virginia because the bills are paid out of the Virginia office.
In conjunction with the foregoing, the Taxpayer lists several invoices which it believes were subjected to the tax in error. Accordingly, the Taxpayer seeks an adjustment of the department's audit assessment.
DETERMINATION
First Use of Property in Virginia
Code of Virginia § 58.1-602 defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." This section further defines "use tax" as "the tax imposed upon the use, consumption, distribution, and storage as herein defined." "Storage" is defined as "any keeping or retention of tangible personal property for use, consumption or distribution in this Commonwealth, or for any purpose other than sale at retail in the regular course of business." (Emphasis added)
Based on this wording, and as related in prior correspondence, the Taxpayer makes a taxable use of tangible personal property which has been delivered to Virginia, regardless that the property may ultimately be deployed to other locations outside of Virginia. Additionally, the tax applies regardless if such property is purchased from Virginia vendors or from vendors located outside of Virginia. This is because the tax liability is triggered by the delivery of the property to Virginia. I have enclosed a prior ruling, Public Document (P.D.) 86-236 (11/19/86), which supports the department's longstanding position.
Regarding the Taxpayer's contention that the auditor's position was in error, the auditor reviewed the vendor invoices, and if the invoices provided that the "ship to" location was Virginia, and that no tax was included, that invoice was included in the audit. The auditor's comments provide that where the invoice did not reflect a "ship to" destination, an assumption was made that the tangible personal property was delivered to the Taxpayer's Virginia headquarters. The auditor states that the Taxpayer provided no documentation to contradict this assumption. Accordingly, with no specific documentation to refute the auditor's assessment, or the method in which the assessment was generated, l do not find cause to invalidate the audit methods employed.
Credit for Taxes Paid
Code of Virginia § 58.1-611, copy enclosed, allows a credit for taxes paid to another state, on property purchased in that state and used in the Commonwealth, and provided that the other state imposes a similar tax. Title 23 of the Virginia Administrative Code (VAC) 10-210-450, copy enclosed, further states that the credit does not apply to tax erroneously charged or incorrectly paid to another state. This same section provides an example wherein a person that purchases and takes delivery in Virginia of tangible personal property from an out-of-state dealer, who incorrectly charges the out-of-state tax, is not allowed a credit for that paid tax. The purchaser must then apply to the out-of-state dealer for a refund of erroneously paid taxes.
In this instance, the Taxpayer purchased supplies from out-of-state vendors and erroneously paid tax to those vendors on tangible personal property shipped to Virginia for temporary storage (i.e., subsequently shipped to the Taxpayer's other out-of-state locations). Accordingly, no credit is available for taxes erroneously paid, and the Taxpayer must pursue its refund from the vendor.
Specific Invoices
Bickett: Auditor comments provide that the invoices at issue reflected a Virginia "ship to" address. As a result, and unless the Taxpayer can provide documentation to the contrary, the auditor properly included these invoices in the audit assessment.
Computer and Telephone Equipment: This equipment was purchased from an out-of-state vendor and delivered to the Taxpayer's Virginia headquarters for subsequent shipment to its other out-of-state locations. As stated above, and as noted in previous audit correspondence with the Taxpayer, the delivery of the tangible personal property to the Taxpayer's Virginia headquarters constitutes a taxable first use. Accordingly, there is no basis for an adjustment of these items.
Unimark: See my remarks related to the granting of a credit for taxes paid. In this instance, the Taxpayer incorrectly paid another state's tax on property shipped to the Taxpayer's Virginia headquarters. Consequently, there is no basis to grant such a credit.
Sato, Wrap It, Ikea, Washington National Airport Hilton: There may be cause for an audit adjustment relating to these invoices; however, the auditor will need to see all of the documentation necessary to properly assess the taxable status.
I will have the department's auditor contact the taxpayer within ten days from the date of this letter ta schedule a review date. Once the auditor has reviewed all of the available information and determined if adjustments are appropriate, a revised audit report and assessment (with updated tax, penalty and interest) will be issued to the Taxpayer.
If you should have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at ****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22591Q
Rulings of the Tax Commissioner