Tax Type
Retail Sales and Use Tax
Description
Taxpayer operates as a government contractor and retailer
Topic
Accounting Periods and Methods
Assessment
Exemptions
Date Issued
10-29-2004
October 29, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the Department's retail sales and use tax audit assessment issued to ***** (the "Taxpayer") for the period July 2000 through June 2003. I apologize for the delay in the Department's response.
FACTS
The Taxpayer operates as a government contractor and retailer. The Department's audit disclosed that the Taxpayer made exempt sales of tangible personal property that were not properly supported by a valid certificate of exemption. The Taxpayer contends that if a valid certificate of exemption is on file, the certificate is honored regardless of what the customer purchases. The Taxpayer seeks an abatement of the tax and interest associated with these sales.
DETERMINATION
In Virginia, all sales, leases and rentals of tangible personal property are taxable unless the contrary is established. Title 23 of the Virginia Administrative Code (VAC) 10-210-280 explains that the burden of proving that the tax does not apply rests with a dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable.
This same regulation provides that "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." Therefore, the seller must use reasonable care and judgment in selling tangible personal property exclusive of the tax, even when an exemption certificate from the purchaser is in his file. Furthermore, 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. I note that the auditor has provided public documents for the Taxpayer's information regarding this issue. Also, see Public Document 95-44 (03/15/95), which provides further detail on the Department's long-standing policy.
Based on a review of your letter and the audit report, I find that the Taxpayer has not furnished sufficient evidence to prove the Department's assessment is erroneous. As the Department's auditor noted, the fact that the Taxpayer has an exemption certificate on file does not mean the customer providing that certificate may make all purchases exempt of the tax. The property must fall within the scope and terms of the exemption certificate to be purchased exempt of the tax. For example, hand cleaner sold to a manufacturer does not qualify for industrial manufacturing exemption because it is not used directly in the manufacturing process.
Notwithstanding the above, I understand the Taxpayer contends that a number of the items sold were actually for resale and should not have been included in the sample computation. I will advise the auditor to contact the Taxpayer to review these items and revise the audit as needed. The Taxpayer should have all of the information available for the auditor's review that will document the transactions at issue represent sales for resale. If documentation is not readily available or is not sufficient to prove the resale nature of the transactions, the audit will be considered correct and the outstanding balance of the assessment, including accrued interest, will become immediately due and payable.
If you have any questions regarding this matter, please contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****@tax.state.va.us or at *****.
-
-
-
-
-
-
-
-
-
- Sincerely,
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
-
-
-
-
-
-
-
-
AR/48750Q
Rulings of the Tax Commissioner