Tax Type
Retail Sales and Use Tax
Description
Landscaping business, Sale for resale
Topic
Exemptions
Property Subject to Tax
Date Issued
09-17-2004
September 17, 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 retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period February 1998 through January 2001. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a landscaping business that was audited by the Department. The Taxpayer is contesting the assessment of sales tax on 2 sales made to a business that had provided the Taxpayer with a resale exemption certificate. The Taxpayer also questions the validity of the sales sample performed by the Department. The Taxpayer maintains that it was a lawn service business that made no retail sales during the majority of the audit period. Yet, the Department extrapolated the results of the sales sample over the entire audit period.
DETERMINATION
Sales for Resale
Virginia Code § 58.1-602 defines "retail sale" as "a sale to any person for any purpose other than for resale ...." Based on this definition, the Taxpayer's sale of trees, plants, or shrubs to a customer for resale is exempt from sales tax if the customer meets the provisions of Va. Code § 58.1-623. This section requires dealers to take a valid exemption certificate from customers that wish to make exempt purchases under Virginia law. You state that the Taxpayer's customer provided the Taxpayer with a resale exemption certificate, Form ST-10; however, the certificate was not presented during the audit. I will allow the Taxpayer to provide a copy of the certificate to the Department for review. If the review of the exemption certificate indicates that the certificate has been properly completed and is valid on its face, the sales transactions will be removed from the audit.
Sales Sample
The Taxpayer suggests that the sales sample conducted by the Department is invalid. The auditor extrapolated the results of a sales sample over the entire 3-year audit period. You state that the Taxpayer's business activity for approximately the first 2 years of the audit period consisted of the provision of lawn care services only. The Taxpayer maintains that it made no retail sales of plants, trees, or shrubs during this time and, therefore, the sales sample is not representative of the Taxpayer's business activity for the audit period at issue.
Sampling is an audit technique that is widely used in the public and private sectors. The Department uses sampling in sales and use tax audits where a detailed audit would not prove beneficial to either the auditor or the taxpayer. When sampling techniques are properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
If the Taxpayer made no retail sales during a substantial part of the audit period, I agree that the sample would not be representative of the Taxpayer's normal business activity for the entire audit period. The Taxpayer has indicated that it can provide documentation showing that it made no retail sales for the period from February 1998 until March 2000. This period will be removed from the extrapolation period used for the sales sample if the Taxpayer can provide the necessary documentation.
An auditor from the Department will contact the Taxpayer to review the Taxpayer's information related to the sales sample and the exemption certificate.
The Code of Virginia sections cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.state.va.us. If you have any questions concerning this determination, please contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/34846S
Rulings of the Tax Commissioner