Tax Type
Retail Sales and Use Tax
Description
Omission on the substitute resale exemption certificates
Topic
Exemptions
Date Issued
11-24-2004
November 24, 2004
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *********:
This will reply to your letter in which you seek the correction of a retail sales and use tax assessment issued to your client, ***** (the "Taxpayer") for the period August 2000 through July 2003. I apologize for the delay in the Department's response.
FACTS
The Taxpayer makes retail sales of automobile refinishing products to automobile body repair shops. The products include paint, primer, body putty, sealants, pin stripes and double-edged tapes. The Taxpayer was audited and assessed tax on untaxed sales of the automobile refinishing products. The Taxpayer had obtained resale exemption certificates from many of the body shops, but the Department did not accept the certificates because they were incomplete.
The Taxpayer maintains that automobile body shops are repair businesses, and the resale exemption should apply to sales of materials that are transferred by the body shops to their customers. The Taxpayer cites the Department's regulation on repair businesses in Title 23 of the Virginia Administrative Code (VAC) 10-210-3050 to support its argument that the transactions in the audit qualify for the resale exemption.
The Taxpayer also states that it accepted the resale exemption certificates in good faith from the body shops. In accordance with Title 23 VAC 10-210-280, the Taxpayer maintains that it should not be held liable for the sales tax on the untaxed transactions.
DETERMINATION
Resale Exemption
The Taxpayer states that the Department's regulation on repair businesses is applicable to automobile body shops. This regulation, Title 23 VAC 10-210-3050, states, "[r]eplacement parts, materials and supplies that are transferred to the customer may be purchased under certificates of exemption." The Taxpayer maintains that the products it sold to body shops were ultimately transferred to the body shops' customers. For this reason, the body shops qualify for the resale exemption on their purchases of these products from the Taxpayer. The Taxpayer agrees that products sold to and used by body shops are taxable if the products are not transferred to the body shops' customers.
The Department's policy with respect to auto body shops is well established. Auto body shops are treated as providers of a personal service with respect to the refinishing and painting of motor vehicles. Title 23 VAC 10-210-1020 discusses the application of sales and use tax to motor vehicle refinishers, painters, and car washers. The regulation states that motor vehicle refinishers and painters are the consumers of the materials and supplies used in their business and are required to pay sales and use tax on their purchases. Automobile refinishers and painters are considered retailers only when they make sales of accessories, seat covers, and similar items separate from the provision of body repair and painting services or when they sell and install replacement body parts such as fenders, door panels, hoods, grilles, trunks, bumpers, window glass and like items.
Based on the above, auto body shops are the taxable users or consumers of purchases of paint, sealants, pin stripes, primer, body putty, and other items that are used for automotive body repair and painting. Purchases of the Taxpayer's products by automobile paint and body shops are taxable. This position is supported by a number of public documents issued by the Department. Public Documents 96-342 (11/21/96) and 97-240 (5/23/97) are particularly on point with the Taxpayer's case. Both documents explain that purchases of tangible personal property by automobile body shops for use in refinishing and painting activities are taxable because the items purchased are used in providing personal services. This is true although tangible personal property is transferred and applied by the body shops to the vehicles of their customers. This position is also consistent with the Department's treatment of providers of professional and personal services as discussed in Title 23 VAC 10-210-4040.
Exemption Certificates
The Taxpayer accepted resale exemption certificates from auto body shops. Many of the exemption certificate forms in the Taxpayer's files were created by the Taxpayer as a substitute for the Department's resale exemption certificate, Form ST-10. The Taxpayer provided the substitute form to its customers.
The Taxpayer's substitute exemption certificate did not call for a description of the customer's type of business, as is required on the Department's resale exemption certificate. The Department noted this omission on the resale exemption certificates and allowed the Taxpayer to obtain completed Forms ST-10 from those customers that had submitted the Taxpayer's substitute certificate.
Title 23 VAC 10-210-280(A) states:
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- All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the 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 .... However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.
Public Document 97-95 (2/21/97) describes the minimum criteria necessary for a valid resale exemption certificate. These criteria provide the information that allows dealers and the Department to confirm that a customer's use of the certificate is valid and proper for a specific sales transaction. Public Document 97-95 explains that the type of business engaged in by the purchaser is one of the required criteria. This document states that the Department requires that an exemption certificate contain all the listed criteria to be considered valid.
As noted above, the Department treats automobile body shops as personal service providers. As such, body shops are considered the users or consumers of tangible personal property purchased for use in their business and must pay the sales and use tax at the time of purchase. This is true although the property purchased may be transferred to customers by affixing it to the surface of the vehicle body. Title 23 VAC 10-210-280(B) provides that "[a]n 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." The Department's policy has established that auto body shops are service providers. The use of a resale exemption certificate by body shops is not a valid use of the resale exemption. For these reasons, I find that the resale exemption certificates obtained by the Taxpayer can not be accepted in good faith.
Moreover, Public Document 97-95 explains that the Department will accept resale exemption certificates designed by taxpayers provided that all the minimum criteria are included in the document and the Department has approved the document prior to its use. The Taxpayer did not receive permission from the Department to use the substitute resale exemption certificate, nor would its use have been approved because the substitute form lacked the required information to be valid.
The Taxpayer notes that the Department allowed the Taxpayer to obtain completed copies of the Department's Form ST-10, resale exemption certificate, from many of its customers. Public Document 98-29 (2/20/98) explains that 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. Because of the nature of the body shops' businesses, the resale exemption certificates are not valid. Body shops provide a personal service and pay the tax on their purchases of materials of the kind supplied by the Taxpayer. Body shops cannot qualify for the resale exemption on such purchases.
Conclusion
Based on the determination above, the Taxpayer's audit assessment is correct. The outstanding balance of ***** should be paid within 30 days from the date of this letter to avoid the accrual of additional interest. While you request a conference in your letter, your request is declined because the Department's policy is well established in the regulations and several prior rulings on point.
The Code of Virginia sections, public documents and regulations cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions concerning this determination, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Kenneth W. Thorson
Tax Commissioner
- Kenneth W. Thorson
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AR/49670S
Rulings of the Tax Commissioner