Tax Type
Retail Sales and Use Tax
Description
Religious Exemption; Certificates Provided in Good Faith
Topic
Exemptions
Property Subject to Tax
Date Issued
06-28-2001
June 28, 2001
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This will reply to your letter in which you seek correction of a retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period April 1995 through April 1998. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer sells and repairs aerial platforms. During the audit period, the Taxpayer sold aerial platforms to churches and did not charge sales tax. The Taxpayer believed the sales to churches were exempt transactions and received an exemption certificate from two of the churches. The department's auditor determined that the aerial platforms did not qualify for the church exemption and assessed the tax. The Taxpayer objects to the assessment and contends that it accepted the exemption certificates in good faith; therefore, it should not be liable for the tax. The Taxpayer also objects to the sampling technique used by the auditor, contending that it overstates the total sales of aerial platforms to churches.
DETERMINATION
Certificates of Exemption
Code of Virginia § 58.1-603 imposes the sales tax upon every person who engages in the business of selling at retail. Sales for resale are not taxable. Furthermore, Code of Virginia § 58.1-623 specifically provides that:
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- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt . . . . (Emphasis added.)
As you can see from the statute cited above, the Taxpayer is relieved of its responsibility to collect the sales tax only if the purchaser provides a valid certificate of exemption. Therefore, a valid exemption certificate is necessary to prove that the underlying sale is indeed exempt.
Church Exemption
Code of Virginia § 58.1-609.8(2) exempts from the retail sales and use tax "tangible personal property . . . purchased by churches . . . for use (i) in religious worship services by a congregation of church membership while meeting together in a single location, and (ii) in the libraries, offices, meeting or counseling rooms or other rooms in the church building used in carrying out the work of the church and its related ministries . . . ." In accordance with Virginia Administrative Code (VAC) 10-210-310, any property used in maintenance of church grounds is taxable.
You contend that the aerial platforms are used in religious programs and holiday worship performances. Letters from a sample of churches have been provided to support your position.
Based on a review of the audit and the information provided with your letter, I find that the Taxpayer accepted in good faith two certificates of exemption relating to the contested sales of aerial platforms. Therefore, these transactions will be removed from the audit. However, sales for which no exemption certificate was received at the time of the transaction remain taxable.
The Taxpayer should note that aerial platforms sold to a church do not automatically qualify for exemption from the sales and use tax. For example, an aerial platform sold to a church for use in maintenance functions is not eligible for the church exemption. Therefore, an exemption certificate should not be accepted and the sales tax should be charged and collected on the transaction.
Sample Period
Sampling is an audit technique of significant value that is widely used in both the public and private sectors for all types of audits where a detailed audit would not prove to be beneficial either to the auditor or the client. When sampling techniques are applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
In this case, the auditor reviewed sales and purchase invoices for January 1997 through December 1997 as the sample period. The Taxpayer agreed to the use of this sample period. The auditor determined an error factor for the representative sample period selected. The error factor was extrapolated over gross sales for the audit period.
Despite the Taxpayer's contentions, I find no basis to invalidate the sample calculations. Before requiring that a detailed audit be conducted or a sample period be adjusted or extended, the Taxpayer must demonstrate that the sample is not representative of the audit period or that it is flawed in a manner which would invalidate the sample. In this case, the Taxpayer has not met this burden.
CONCLUSION
The audit assessment has been adjusted to remove the contested transactions for which a certificate of exemption was received in good faith. There is no basis for additional adjustments to the assessment. Accordingly, a balance of ***** tax plus ***** interest accrued through the original date of assessment) is due and payable. The Taxpayer's payment for ***** should be sent to the department's Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. If payment is not received within 30 days, interest will accrue on the outstanding balance from the original date of assessment to the date of payment.
If you have any questions regarding this determination, please contact **** in the department's Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/16780J
Rulings of the Tax Commissioner