Document Number
04-104
Tax Type
Retail Sales and Use Tax
Description
Assessed tax on the sale of maintenance agreements to non profits
Topic
Exemptions
Taxability of Persons and Transactions
Date Issued
09-08-2004


September 8, 2004





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

Dear *********:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period July 2000 through May 2003. I apologize for the delay in this response.
FACTS

The Taxpayer provides technology to nonprofit organizations and educational institutions. As a result of the Department's audit, the Taxpayer was assessed tax on the sale of maintenance agreements made to (the "Customer"). The Taxpayer sold the maintenance agreements to the Customer exempt of the tax. You maintain that the exemption certificate filed with the Taxpayer's appeal is sufficient documentation to prove that the sale to the Customer was correctly treated as an exempt sale.
DETERMINATION

Virginia Code § 58.1-623 provides that 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 under this chapter. It further provides that the certificate shall relieve the person who takes such certificate from any liability for the payment of collection of the tax, except upon notice from the Tax Commissioner that such certificate is no longer acceptable. The statute also requires that the certificate be signed by and bear the name and address of the taxpayer

Title 23 of the Virginia Administrative Code 10-210-280 provides, in pertinent part, that a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice. It 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 an item of tangible personal property not covered by the exact wording of the certificate. Furthermore, Public Document 95-44 (3/15/95) provides that certificates of exemption obtained during or after an audit 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.

In this instance, the Taxpayer has presented a certificate of exemption (Form ST-13) as evidence that it was correct in not charging tax to the Customer on the sale of maintenance agreements. The invoice at issue indicates that the Customer was the "bill to" and "ship to" customer. The exemption certificate provided after completion of the audit lists ***** (the "College") as the purchaser. The Taxpayer has not provided any documentation indicating that the exemption certificate it received from the Customer would be valid as to this specific invoice. Additionally, no documentation has been provided showing that the Customer is part of the College, or that it is proper for the Customer to use an exemption certificate on which the College is listed as the purchaser. In fact, information obtained by the Department indicates that the Customer is a legal entity separate and independent of the College. Accordingly, the Customer's use of the exemption issued to the College is improper, and the exemption certificate provided is invalid.

Based on this determination, the transaction at issue is taxable. Accordingly, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest or penalties will accrue provided the outstanding assessment is paid within thirty days of the date of this letter.

The Code of Virginia sections, regulations and public document cited, along with other reference documents, 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 about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                • Sincerely,


                    • Kenneth W. Thorson
                      Tax Commissioner

AR/47902P

Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46