February 21, 2023
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 2015 through February 2021.
FACTS
The Taxpayer, a physician’s office with two locations in Virginia, was audited for the period at issue. Following the audit, an assessment was issued for tax and interest due on untaxed general expense and fixed asset purchases. The Taxpayer appeals, seeking the removal of various purchases held as exceptions in the audit. The Taxpayer also claims that tax was properly paid on certain purchase exceptions where the auditor determined that another state’s tax was incorrectly paid on such transactions.
DETERMINATION
Erroneous Tax Paid
During the audit, the auditor reviewed invoices provided by the Taxpayer and noticed that an incorrect sales tax rate was charged by a vendor on certain purchases. This generally signifies that another state’s tax is being collected. The auditor investigated further and determined that ***** (the “Vendor”) was not registered to collect and remit Virginia sales tax. The Taxpayer seeks the removal of purchases from the Vendor on the basis that it has already fulfilled its responsibility to pay the tax on these transactions.
With regard to taxes paid to another state, Title 23 of the Virginia Administrative Code (VAC) 10-210-450 allows a credit for taxes paid elsewhere. However, such a credit is intended only to apply to taxes owed in the state from which the property was purchased, if legitimately imposed because of a taxable use made in the vendor's state, and prior to the delivery of the property in Virginia. Title 23 VAC 10-210-540 states, in part, that:
This credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund.
Public Document (P.D.) 99-187 (7/15/1999) and P.D. 00-24 (3/28/2000) are relevant to this case. In P.D. 99-187, the vendor sold and delivered materials to the taxpayer in Virginia and collected a 5% sales tax and remitted it to the vendor's state. The taxpayer contested the assessment of Virginia tax on the purchase and claimed that it met its obligations to pay the sales tax. The Tax Commissioner upheld the assessment and ruled that the taxpayer did not exercise reasonable care and judgment to ensure that it was properly paying a Virginia retail sales or use tax on the purchase. A similar situation was addressed in P.D. 00-24. In that case, the auditor included in the sample two purchases on which the taxpayer paid another state's sales tax in error. The taxpayer claimed that the purchases distorted the sample by assuming that other similar purchases were subjected to another state's tax. The Tax Commissioner upheld the assessment, ruling that the removal of the transactions would nullify the purpose and validity of the sample.
Under long settled principles of sales and use tax law, the Department may seek payment of the tax from either the seller or the purchaser of tangible personal property. The case of United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977) aff'd, 569 F.2d 811 (4th Cir. 1978) held that while "the seller is legally obligated to collect the tax from the purchaser, the statute [Virginia Code § 58.1-625] makes the tax the legal debt of the purchaser." Thus, the Taxpayer's obligation for payment of the tax does not cease when it pays the wrong state's sales tax to a vendor. In this case, the Taxpayer erroneously paid another state’s sales tax on a purchase in which Virginia sales and use tax was due. Accordingly, the Taxpayer should remit the proper tax to the Department and apply to the vendor for a refund of the tax paid.
Other Issues
Based on documentation provided with the appeal, the Department’s auditor concurs with the Taxpayer that a duplicate fixed asset line item purchase exception was included in the audit report in the amount of ***** and Abbvie medication purchases were property exempt from the sales and use tax.
CONCLUSION
In accordance with this determination, the audit will be returned to the audit staff to revise the assessment. The assessment will be revised to remove the duplicate fixed asset purchase and the exempt medication purchases. The purchases for which the wrong state’s tax was paid will remain in the audit. If any balance remains after the audit revision, an updated bill, with interest accrued to date, will be sent to the Taxpayer. No further interest will accrue if the bill is paid within 60 days.
The Code of Virginia section, regulation, and public documents cited are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4209.G