Document Number
17-2
Tax Type
Retail Sales and Use Tax
Description
The Taxpayer has not met its burden of proof that the assessment is incorrect.
Topic
Tangible Personal Property
Collection of Tax
Appropriateness of Audit Methodology
Date Issued
01-19-2017

January 19, 2017

Re:      § 58.1-1821 Application:  Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the period March 2009 through February 2012.  I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is in the business of providing audio and video conferencing solutions for its clients.  The Taxpayer engineers and installs distinct audio/visual systems in various applications for commercial and government clients.  The Taxpayer states that the determination in the audit at issue, that the Taxpayer was not properly applying the tax with respect to labor charges, is in contradiction to the prior audit.  The Taxpayer maintains that the first Department audit confirmed that its method of calculating the tax was correct with respect to charges for labor.  The Taxpayer also contests the inclusion of transactions related to three separate businesses in the audit.  The Taxpayer further requests that the penalty assessed in the audit be waived.

DETERMINATION

Labor Charges

The Taxpayer maintains that in the first audit, it was confirmed that all charges for labor are not subject to the retail sales and use tax.  The Taxpayer maintains that it relied on guidance from the first audit when applying the tax to labor charges for the audit period at issue.

Virginia Code § 58.1-609.5 2 states that the retail sales and use tax does not apply to “An amount separately charged for labor or services rendered in installing, applying, remodeling, or repairing property sold or rented.”  Title 23 of the Virginia Administrative Code 10-210-4040 addresses services and in section C 3 states that “separately stated labor or service charges for the repair, installation, application or remodeling of tangible personal property are not subject to the tax.”

Virginia Code § 58.1-602 defines sales price as “the total amount for which tangible personal property or services are sold, including any services that are a part of the sale... without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever.”

During the performance of the audit, the Taxpayer provided the Department's audit staff with a breakdown of the labor associated with the tangible personal property sold by the Taxpayer.  In the audit, only the labor performed by the installation technician was deemed to be installation labor as considered in Virginia tax law.  Based upon a review of the job descriptions provided, I concur with the findings of the audit.  Accordingly, only the labor performed by the installation technician is deemed installation labor that would qualify for the cited exemption, as long as the charge is separately stated on the invoice provided to the Taxpayer's customer.

My decision is supported by a prior ruling of the Tax Commissioner.  In Public Document 09-117 (7/31/09), the taxpayer requested a ruling regarding the charges to its customers for designing, building and installing audio-visual equipment systems.  The systems consisted of videoconferencing equipment, screens, speakers, interactive white boards, and remote control devices.  Most of the equipment was typically contained on shelving (a rack) or a ceiling via brackets.  All equipment was easily removed or relocated.  The equipment was plugged into the building's existing electrical outlets.  Based upon the facts presented, the Tax Commissioner determined that the audiovisual systems sold by the taxpayer with or without installation constituted retail sales of tangible personal property.  In such instances, the taxpayer was instructed to charge and collect the sales tax based on the total charge for the sale of the audio-visual systems.  Additionally, the taxpayer was instructed that separately stated installation charges are not subject to the tax.

Prior Audit

The prior audit information provided by the Taxpayer indicates that there were no exceptions for labor identified in the audit review.  The audit information does not contain notes or comments from the audit staff that would confirm the Taxpayer's method of applying the tax in the current audit period.

Virginia Code § 58.1-1835 authorizes the Tax Commissioner to abate any portion of any tax, interest, and penalty attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity if certain conditions are met.  As the Taxpayer has not provided sufficient written documentation to support its contention that the tax was calculated during the audit period based upon guidance received in the prior audit, I am unable to grant any relief on this basis.

Virginia Code § 58.1-205 states that “any assessment of a tax by the Department shall be deemed prima facie correct.”  The taxpayer has the burden of proving that the tax assessed is incorrect.  In this instance, the Taxpayer has not provided documentation to support its contention that the assessment of tax is incorrect and, as such, has not met the burden of proof.

Other Transactions

***** (Customer A)

In P.D. 09-117, the Tax Commissioner states that sales of audio visual equipment to real property construction contractors are taxable because such contractors are deemed the consumers of all tangible personal property pursuant to real property construction contracts.

Included in the sample for Customer A is a transaction for which the Taxpayer did not collect the sales tax at the time of the sale.  While the audit was being conducted, the Taxpayer received a payment of sales tax related to this transaction from Customer A. Customer A paid the tax on the transaction to the Taxpayer in September 2013.  The Taxpayer included the tax for the transaction at issue on its October 2013 sales and use tax return.

Based upon the information provided, and for the purpose of this audit only, I will allow a credit in the audit for the amount of tax paid by Customer A to the Taxpayer.  Accordingly, the audit will be returned to the appropriate field audit staff to give a credit in the audit in the amount of *****.

**** (Customer B)

The Taxpayer states that many attempts were made to collect the tax from Customer B.  Customer B indicated to the Taxpayer that it self accrued the tax and remitted the tax to the Department.

The Taxpayer has provided for review e-mail correspondence between it and Customer B regarding the tax at issue.  In the e-mail, Customer B indicates that the tax at issue was self accrued and paid to the Department.  However, Customer B did not provide the Taxpayer with any proof that the tax was actually remitted to the Department.  The e­mail provided is insufficient to show that the tax assessment is incorrect.  The Taxpayer has not met its burden of proof in this instance.  Accordingly, the assessment is correct as issued with respect to Customer B.

***** (Customer C)

The Taxpayer maintains that the sale at issue was properly made exempt of the tax. The Taxpayer provides a copy of Form ST-12, issued to the Taxpayer from Customer C. The Taxpayer states that this document confirms a contract with the U.S. Government and should have been accepted during the audit as proof that the sale at issue was not subject to the tax.

Virginia Code § 58.1-609.1 4 states, in pertinent part, that the retail sales and use tax does not apply to “Tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States.”

P.D. 09-117 provides that “sales to the government (i.e., federal, Virginia, or political subdivisions of Virginia)... are allowed a specific exemption from the tax on their purchases provided they furnish a valid exemption certificate.”

In this instance, ***** (the “Contractor”) is a prime contractor with respect to a contract it entered into with Customer C.  The Contractor entered into a subcontract with the Taxpayer, which required the Taxpayer to perform certain work in relationship to the Contractor's prime contract with Customer C.  A copy of the subcontract has been provided for review.  The sale at issue occurred as a result of the contract between the Taxpayer and the Contractor.  The Taxpayer has not entered into a contract with Customer C.  “Sales to the government...are allowed a specific exemption from the tax on their purchases provided they furnish a valid exemption certificate.”  See, P.D. 09-117. The Form ST-12 that was provided by the Taxpayer with its appeal could not have been used to make sales to the Contractor exempt of the tax because the sale was made with respect to the Taxpayer's contract with the Contractor, not with the government.  The Form ST-12 is insufficient to prove that the tax assessed in the audit is incorrect.  Accordingly, the assessment is correct as issued with respect to Customer C.

CONCLUSION

Based upon this determination, the adjustment will be made for the transaction involving Customer A as stated above.  The remaining portion of the assessment is correct as issued.

If the Taxpayer will experience a financial burden in paying the assessment after the above adjustment has been made, the Taxpayer may wish to request an offer in compromise based on doubtful collectibility.  The Taxpayer must present evidence of doubtful collectibility to support a claim of financial hardship.  If the Taxpayer wishes to pursue a settlement based on doubtful collectibility, please complete and return the enclosed Offer in Compromise Business Request For Settlement and Financial Information Statement For Businesses forms.  These forms will allow the Department to review and analyze the Taxpayer's financial situation.  Upon completion of the Department's review, a response will be issued based upon the information provided.  The completed forms should be sent to: Tax Commissioner, Virginia Department of Taxation, Attn: CICT, P.O. Box 2475, Richmond, VA 23218-2475.  You may also fax the forms to (804) 786-2645.

The Taxpayer is given 30 days to submit an offer in compromise based upon doubtful collectibility, as provided above.  If the forms are not received within the allotted time frame, a bill will be mailed to the Taxpayer, reflecting the adjustment, the aforementioned reduction and interest accrued to date.  No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit payment to: Virginia Department of Taxation, 600 E. Main Street, 23rd Floor, Richmond, Virginia 23219, Attn: *****.  If you have any questions concerning payment of the assessment, you may contact ***** at *****.

The Code of Virginia sections, regulation, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site.  If you have any questions about this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

 

Craig M. Burns
Tax Commissioner

 

AR/543.P

 

 

Rulings of the Tax Commissioner

Last Updated 02/27/2017 13:59