04-18 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Failed to maintain the correct paperwork to support claim of exempt sales

Topic

Collection of Tax

Exemptions

Date Issued

06-01-2004

June 1, 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 May 2000 through March 2003.

FACTS

The Taxpayer sells sporting goods products at retail. As a result of the audit, the Taxpayer was assessed tax on sales of tangible personal property made exempt of the tax. The tax was assessed on these sales because the Taxpayer was unable to provide documentation supporting its claim that the sales were exempt from the tax. You maintain that the non-taxed sales were properly reported, except that the Taxpayer failed to maintain the correct paperwork.

DETERMINATION

Pursuant to Va. Code § 58.1-623, 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.

Virginia Code § 58.1-633 provides that every dealer that is required to make a return and pay or collect any tax shall keep and preserve suitable records of the sales, leases, or purchases, and such other books of account as may be necessary to determine the amount of tax due, and such other pertinent information as may be required by the Tax Commissioner. Title 23 of the Virginia Administrative Code (VAC) 10-210-407 provides that such records must include a record of all deductions and exemptions claimed in filing sales and use tax returns, including exemption and resale certificates, returned or repossessed goods, and bad debts.

Virginia law requires that the Taxpayer maintain a record of all exemptions claimed, including a copy of the exemption certificate that it accepted from its customers. In this instance, the Taxpayer was unable to provide the audit staff with the documentation (exemption certificates) required to establish its burden of proof that the sales were, in fact, exempt. You maintain that the Taxpayer provided a copy of tax exempt registration numbers to the audit staff. Pursuant to Virginia Tax Bulletin 99-9 (6/18/99) (copy enclosed), effective July 1, 2001, the Department began issuing tax exempt registration numbers to certain nonprofit organizations for the purpose of making tax exempt purchases. The Taxpayer could have used these numbers to satisfy its burden of proof, by showing that the tax exempt registration numbers corresponded to specific exempt sales. Subsequent to the completion of the audit, the audit staff provided the Taxpayer with a list of documentation required to establish that the contested sales were exempt. To date, the Taxpayer has not demonstrated that the tax exempt registration numbers correspond to specific sales, nor has it provided the required documentation to the Department.

Based on the foregoing, the assessment is correct. If the Taxpayer can show that the tax exempt registration numbers correspond to specific exempt sales, the sales will be removed from the assessment. Failing that, the Taxpayer must provide the necessary documentation as prescribed in the audit staff's memo (copy enclosed) in order to have the sales removed from the assessment. The required documentation must be submitted to the Department within 45 days from the date of this letter. If this requirement is not met within the allotted time, an updated bill, with interest accrued to date, will be mailed to the Taxpayer and collection action will resume. You should note that pursuant to Public Document 98-182 (10/30/98), any exemption certificate or other documentation obtained from a customer in an attempt to establish an exemption on prior purchases by customers is subject to close scrutiny. In such instances, the Department is under no obligation to accept the exemption certificate or other documentation to establish an exemption when obtained well after the sale occurred.

The Code of Virginia sections and regulation 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 about this response, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *************************.

- - - - Sincerely,

- - - - Ken W. Thorson
        Tax Commissioner

AR/48667P

Rulings of the Tax Commissioner