July 6, 2023
Re: § 58.1-1821 Refund Application: Retail Sales and Use Tax
Dear Mr. *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer’), in which you request a refund of the Virginia retail sales and use tax paid to Virginia for the periods May 2018, July 2018, and August 2018.
FACTS
The Taxpayer is a truck dealership with locations in and outside of Virginia. The Taxpayer states that, due to a clerical error, it overpaid sales tax for the periods at issue. The Taxpayer initially submitted amended returns to the Department in February 2019 to request a refund for the period July 2018. The Department communicated with the Taxpayer to request additional documentation regarding the refund claim to support its exempt sales figures reported on the amended returns. The Taxpayer failed to respond to the Department’s requests and the claim was closed by letter dated June 3, 2020. On June 21, 2021, the Taxpayer responded to the Department’s refund denial letter, explaining that the amended returns were submitted due to a clerical error on the original returns and questioning what documentation would be necessary to substantiate its claims. On June 22, 2021, Department personnel sent an email to the Taxpayer, detailing the necessary documentation and the statute of limitations pertaining to refund requests. The Taxpayer claims that an employee overlooked this email and did not take action because it assumed the refund request was still in review. The Taxpayer now requests an extension of the statute of limitations period for refunds in order to satisfy the documentation requirements.
DETERMINATION
In Commonwealth v. Ferris, Co., 120 Va. 827, 830, 92 S.E. 804, 805 (1917), the Supreme Court of Virginia held that “[t]he general rule is well settled that taxes voluntarily paid cannot be recovered in the absence of a statute providing for their repayment.”
Virginia Code § 58.1-1823 A states in pertinent part that “[a]ny person filing a tax return or paying an assessment required for any tax administered by the Department [of Taxation] may file an amended return with the Department...three years from the last day prescribed by law for the timely filing of the return Title 23 of the Virginia Administrative Code 10-210-3040 states, in part, that “[r]efunds cannot be authorized unless the request is made within three years from the due date of the return.”
Virginia Code § 58.1-633 states:
Every dealer required to make a return and pay or collect any tax under this chapter shall keep and preserve suitable records of the sales, leases, or purchases, as the case may be, taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the
Tax Commissioner.
The Department’s Guidelines tor Retail Sales and Use Tax Refund Claim Procedures, published as Public Document (PD.) 17-98 (6/12/2017), provides the following:
For purposes of satisfying the three-year statute of limitations, an incomplete Refund Claimant Return is not sufficient. If a refund claim is denied and a taxpayer files a new Refund Claimant Return for the same transaction, the date of the request for purposes of the statute of limitations will be the date the Department receives the new Refund Claimant Return, not the date of the first refund claim that was denied.
In this case, the Department requested supporting documentation from the Taxpayer to verify the information provided in its amended return. When the Taxpayer failed to respond to the Department’s requests, the auditor issued a letter to the Taxpayer denying the refund request because the information submitted with the claim was unsubstantiated by supporting documentation.
The Taxpayer now requests an extension of the statute of limitations period for refunds, reasoning that the Department should consider challenges brought on by the COVID-19 pandemic in support of its request. The Taxpayer’s proposal amounts to a form of equitable recoupment. The Department has addressed the doctrine of equitable recoupment in P.D. 94-312 (10/12/1994). The Department found that the Virginia Supreme Court set the standard for equitable recoupment in Virginia when it stated, “ it is well settled that the common law continues in force in Virginia except as altered by statute.” See Commonwealth v. Holland, 211 Va. 530,532, 178 S.E.2d 506, 507 (1971).
Equitable recoupment is not applicable to this situation. In its request for an extension, the Taxpayer claims that it missed the Department’s email dated June 22, 2021 because of the pandemic, but does not provide an explanation for its lack of response to the documentation request dated September 3, 2019. While the Taxpayer claims that it assumed the Department was still handling the refund claim, the Department timely informed the Taxpayer regarding the status of the incomplete claim and attempted to contact the Taxpayer for additional information. I would also like to note that the failure to respond to the Department’s initial requests occurred before the COVID-19 pandemic.
In addition, the Department attempted to contact the Taxpayer numerous times to request information and provided the Taxpayer with plenty of time to respond to the requests for documentation during the review of the refund claim. By its own admission, a complete refund claim was not timely submitted as a result of the Taxpayer’s inaction. The Department submitted timely information to the Taxpayer regarding the statute of limitations deadline and the information necessary to process the claim. This information is also widely available on the Department’s website. The three-year statute of limitations to file an amended return for refund for the latest period at issue (August 2018) expired on September 2021. In accordance with the aforementioned authorities, the Department is not authorized to issue a refund outside of the three-year statute of limitations. Accordingly, the Taxpayer’s request for extension of the statute of limitations for refund for the periods May, July, and August 2018 cannot be granted.
The Code of Virginia section and regulation cited, along with other reference documents, 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/4196.G