Tax Type
Retail Sales and Use Tax
Description
Fabricator of kitchen counter tops
Topic
Collection of Delinquent Tax
Exemptions
Property Subject to Tax
Date Issued
05-16-2000
May 16, 2000
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter concerning the sales and use tax audit assessment issued to your client, ***** (the "Taxpayer"). I apologize for the delay in responding to your appeal. Copies of cited sources are enclosed.
FACTS
According to the facts presented, the Taxpayer fabricates, sells and installs kitchen counter tops. As a result of an audit for the period June 1995 through May 1998, the Taxpayer was determined to be a retailer of counter tops and assessed sales tax on untaxed sales. In addition, the Taxpayer was assessed use tax on untaxed purchases of fixed assets.
It is my understanding that you protest the lien issued by the department against your client's bank account and maintain that the Taxpayer was never apprised of this liability until shortly before the funds were garnished. Furthermore, you maintain that another attorney for the Taxpayer had sent a letter of protest prior to the issuance of the lien. In addition, the Taxpayer maintains that its attorney and accountant were not apprised of the results of the audit and never received a copy of the audit. For these reasons, you request the release of the department's lien.
DETERMINATION
Lien
On December 3, 1998, the department issued the original Notice of Assessment to the Taxpayer for the outstanding liabilities as determined by the auditor. The department's records also indicate that a second Notice of Assessment was issued to the Taxpayer on February 20, 1999. On March 11, 1999, the department applied a third party lien to the Taxpayer's bank account for nonpayment of the assessment, in accordance with Code of Virginia § 58.1-1804. This statute does not require prior notice to be given to a taxpayer before applying the third party lien.
As these Notices of Assessment were sent to the Taxpayer's last known mailing address at the time, this action constituted sufficient notice to the Taxpayer of the audit liability and provided the Taxpayer with sufficient time to arrange for its payment or to notify the department that it was appealing the assessment.
I would note, however, that the department has no record of having received a letter of protest from the other attorney initially associated with this matter. In addition, no proof has been furnished to the department that such other letter was received by the department prior to issuance of the lien. Based on all of the foregoing, I must conclude that the third party lien action in this case was proper.
Audit findings
A review of the audit findings reveals that the Taxpayer was determined to be a retailer of all counter tops whether sold outright or sold and installed by the Taxpayer. The auditor relied on the special provisions set out in subsection G of Title 23 of the Virginia Administrative Code (VAC) 10-210410 as the basis for the assessment. However, as pointed out in Public Document (P.D.) 96-111 (5/31/96), counter tops are not subject to the classification rules set out in subsection G of the above cited regulation. Rather, the Taxpayer is subject to the rules set out in subsection E of the above cited regulations.
Accordingly, when the Taxpayer sells and installs counter tops, it is a using and consuming contractor of the counter top materials and is generally liable for the tax based on the cost price of such materials, provided it principally sells and installs counter tops. However, when the Taxpayer sells counter tops at retail without installation, it must collect the sales tax based on the total sales price of the article.
Based on the foregoing, I must conclude that the assessment of sales tax on the sales price of counter tops sold and installed by the Taxpayer is improper. However, as the Taxpayer generally did not pay tax on the cost price of counter top materials, it remains liable for use tax on the cost price of such untaxed materials for the period of the audit still within the statute of limitations for assessing tax. Accordingly, the audit will be returned to the department's Managed Audit Program for revision. Such revision is likely to result in a substantial reduction in the assessment.
Of final importance, I would note that the production exemptions are not available to a fabricator who fabricates primarily for his own use or consumption. See subsection F of 23 VAC 10-210-410. Accordingly, based on the facts presented, I find no basis for the production exemptions to apply to the fixed assets held taxable in the audit.
If you have any questions about the audit revision, please contact **** of my managed audit staff at ****. If you have any questions about this response, please contact **** of my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22767R
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear ****
This is in response to your letter concerning the sales and use tax audit assessment issued to your client, ***** (the "Taxpayer"). I apologize for the delay in responding to your appeal. Copies of cited sources are enclosed.
FACTS
According to the facts presented, the Taxpayer fabricates, sells and installs kitchen counter tops. As a result of an audit for the period June 1995 through May 1998, the Taxpayer was determined to be a retailer of counter tops and assessed sales tax on untaxed sales. In addition, the Taxpayer was assessed use tax on untaxed purchases of fixed assets.
It is my understanding that you protest the lien issued by the department against your client's bank account and maintain that the Taxpayer was never apprised of this liability until shortly before the funds were garnished. Furthermore, you maintain that another attorney for the Taxpayer had sent a letter of protest prior to the issuance of the lien. In addition, the Taxpayer maintains that its attorney and accountant were not apprised of the results of the audit and never received a copy of the audit. For these reasons, you request the release of the department's lien.
DETERMINATION
Lien
On December 3, 1998, the department issued the original Notice of Assessment to the Taxpayer for the outstanding liabilities as determined by the auditor. The department's records also indicate that a second Notice of Assessment was issued to the Taxpayer on February 20, 1999. On March 11, 1999, the department applied a third party lien to the Taxpayer's bank account for nonpayment of the assessment, in accordance with Code of Virginia § 58.1-1804. This statute does not require prior notice to be given to a taxpayer before applying the third party lien.
As these Notices of Assessment were sent to the Taxpayer's last known mailing address at the time, this action constituted sufficient notice to the Taxpayer of the audit liability and provided the Taxpayer with sufficient time to arrange for its payment or to notify the department that it was appealing the assessment.
I would note, however, that the department has no record of having received a letter of protest from the other attorney initially associated with this matter. In addition, no proof has been furnished to the department that such other letter was received by the department prior to issuance of the lien. Based on all of the foregoing, I must conclude that the third party lien action in this case was proper.
Audit findings
A review of the audit findings reveals that the Taxpayer was determined to be a retailer of all counter tops whether sold outright or sold and installed by the Taxpayer. The auditor relied on the special provisions set out in subsection G of Title 23 of the Virginia Administrative Code (VAC) 10-210410 as the basis for the assessment. However, as pointed out in Public Document (P.D.) 96-111 (5/31/96), counter tops are not subject to the classification rules set out in subsection G of the above cited regulation. Rather, the Taxpayer is subject to the rules set out in subsection E of the above cited regulations.
Accordingly, when the Taxpayer sells and installs counter tops, it is a using and consuming contractor of the counter top materials and is generally liable for the tax based on the cost price of such materials, provided it principally sells and installs counter tops. However, when the Taxpayer sells counter tops at retail without installation, it must collect the sales tax based on the total sales price of the article.
Based on the foregoing, I must conclude that the assessment of sales tax on the sales price of counter tops sold and installed by the Taxpayer is improper. However, as the Taxpayer generally did not pay tax on the cost price of counter top materials, it remains liable for use tax on the cost price of such untaxed materials for the period of the audit still within the statute of limitations for assessing tax. Accordingly, the audit will be returned to the department's Managed Audit Program for revision. Such revision is likely to result in a substantial reduction in the assessment.
Of final importance, I would note that the production exemptions are not available to a fabricator who fabricates primarily for his own use or consumption. See subsection F of 23 VAC 10-210-410. Accordingly, based on the facts presented, I find no basis for the production exemptions to apply to the fixed assets held taxable in the audit.
If you have any questions about the audit revision, please contact **** of my managed audit staff at ****. If you have any questions about this response, please contact **** of my tax policy staff at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/22767R
Related Documents
Rulings of the Tax Commissioner