04-103 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Direct payment permits numbers, Resale certificates of exemption

Topic

Exemptions

Date Issued

09-08-2004

September 8, 2004

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear ***********:

This will reply to your letter in which you seek correction of the sales and use tax assessment issued to your client, ********* (the "Taxpayer"), for the audit period April 1999 through February 2002. The Taxpayer has paid the assessment and requests a refund. I apologize for the delay in the Department's response.

FACTS

As a result of an audit, the Department issued an assessment to the Taxpayer for failure to collect sales tax on certain sales. The Taxpayer contends that the contested sales should be removed from the audit sample because (i) the Taxpayer was not required to collect the tax, and (ii) the customer accrued and remitted the tax to the Department.

DETERMINATION

Virginia Code § 58.1-623 states that:

- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale . . . 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 under [the Virginia Retail Sales and Use Tax Act].

Title 23 of the Virginia Administrative Code (VAC) 10-210-280(A) further provides that "Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax free purchase of any item of tangible personal property not covered by the exact wording of the certificate." Further, certificates of exemption obtained during or after an audit situation will be accepted only if the Department can confirm that the customer's use of the certificate was valid and proper for the specific transaction.

Keeping the above in mind, I will address the contested sales.

Resale certificates of exemption

In this case, the certificate of exemption provided after the audit was deemed not valid because the customer is engaged in the business of property management and is not registered with the Department as a retailer entitled to purchase tangible personal property for resale. Therefore, the customer cannot purchase items under a resale exemption certificate. As such, sales made to this customer for which the Taxpayer obtained a resale certificate of exemption must be held taxable, even if the certificate was on file at the time of purchase. Accordingly, the sale to this customer was properly included in the Department's audit.

In the future, the Taxpayer must use reasonable care and judgment when accepting resale certificates of exemption from customers to ensure that the sale qualifies for exemption. Public Document (P. D.) 98-29 (2/20/98) sets out the Department's policy with regard to this issue.

Direct pay permits

In this case, the Taxpayer did not have a copy of the direct payment permit, or the direct payment permit number on file from the customer for the contested sales. The Taxpayer has since obtained direct payment permits or direct payment permit numbers from its customers. If the auditor can verify the customer's ability to purchase tangible personal property exempt of the tax, I will allow for an adjustment of the sample.

Other sales

The Taxpayer claims that its customers self-assessed the use tax on certain sales held taxable in the audit. The documentation submitted does not conclusively show that the tax was paid to the Department on the contested sales. The documentation should verify the month in which the customer accrued the use tax on each purchase in question. If the requested information is provided, I will allow credit against the assessment to the extent the auditor can verify that the customer has paid the tax. See P. D. 01-51 (4/27/01), which further addresses sampling and credit given against the assessment for the taxes paid by the customer.

Government sales

In this case, the Taxpayer obtained a valid certificate of exemption, Form ST-12, from its customer for the contested sale. Accordingly, this item will be removed from the audit sample.

Conclusion

I am returning the audit to the Interstate Audit Unit for further review and possible revisions regarding the direct payment permit issue. If the Taxpayer can provide documentation that verifies the tax was accrued and paid by the customer on the remaining contested sales, credit will be given against the assessment for the tax paid. The additional information should be sent to ***** in the Department's Office of Policy and Administration, Appeals and Rulings, Post Office Box 1880, Richmond, Virginia 23218-1880, within 45 days of the date of this letter. In the event the requested information is not furnished within the time allotted or is found to be inadequate or otherwise unacceptable, the audit will be revised and a refund issued only for the sales in which the Taxpayer obtained a valid certificate of exemption, Form ST-12, and the sales made exempt of the tax pursuant to a valid direct payment permit, as verified by the auditor.

The Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions regarding this determination, please contact ***** at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/43109T

Rulings of the Tax Commissioner