Tax Type
Retail Sales and Use Tax
Description
Is the Taxpayer an industrial manufacturer or a retailer?
Topic
Appropriateness of Audit Methodology
Date Issued
03-15-2002
March 15, 2002
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****
This is in response to your letter requesting reconsideration of the department's determination of April 10, 2001, which upheld the retail sales and use tax assessment issued to ***** (the "Taxpayer") as a result of an audit for the period February 1997 through January 1999. I apologize for the delay in responding to your letter.
You claim that the prior determination contained several factual inaccuracies. In reviewing those claims, the location of the Taxpayer in a business park and not in a mall is not a key element in this case. Nor does there appear to be any significance in claiming that the Taxpayer's website is not to advertise but to educate potential clients about the Taxpayer's production capability. Sales of standard embroidered textile merchandise are not a material amount and do not influence the outcome of this case.
In contrast to your claims, I must recognize that a determination of the predominant nature of the Taxpayer's sales is necessary. This determination aids in establishing whether the Taxpayer is an industrial manufacturer or a retailer pursuant to the Standard Industrial Classification (SIC) Manual. As mentioned previously, codes 20 through 39 of the SIC Manual serve as the primary determinants for classifying a business as an industrial manufacturer. In reviewing the SIC codes, the Taxpayer appears to be substantially similar to non-industrial establishments that primarily engage in the retail sale of custom printed tee shirts, i.e., SIC code #5699.
Furthermore, although the Taxpayer may be engaged primarily as a custom printer of garments, the Taxpayer is not automatically deemed an industrial manufacturer pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-3010(C). Rather, any printer or other business claiming industrial manufacturer status must satisfy the "industrial in nature" requirement of the manufacturing exemption as defined in Code of Virginia § 58.1-602.
It is my understanding that the department's auditor and the Taxpayer had reviewed the Taxpayer's sales report showing all sales to all customers for the entire audit period. According to the auditor, this review revealed that the Taxpayer had primarily sold at retail to end users during the audit period. You have indicated that no reliable determination was made as to the percentage of retail versus wholesale sales. However, you have not presented any evidence to refute the auditor's finding that the Taxpayer primarily sold to end users during the audit period.
Pursuant to Code of Virginia § 58.1-205, the Taxpayer has the burden of proving that the contested tax assessment in this case is erroneous. The Taxpayer has not met that burden of proof. Consequently, I find no basis for revising the assessment.
Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will shortly be mailed to the Taxpayer. No additional interest will accrue provided the outstanding liability is paid within 45 days from the date of this letter. If payment is not received within the allotted time, interest will accrue on the outstanding balance and collection action will resume.
If you have any questions regarding this response, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/35259R
Rulings of the Tax Commissioner