Document Number
04-210
Tax Type
Retail Sales and Use Tax
Description
Sales made to a government entity; the government exemption is not available
Topic
Exemptions
Subtractions and Exclusions
Date Issued
12-03-2004
December 3, 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 period October 2000 through September 2003.
FACTS

During the audit period, the Taxpayer failed to collect tax on sales made to ***** (the "customer"). As a result of the Department's audit, the Taxpayer was assessed tax on the sales at issue. You maintain that the assessment of tax is erroneous because the sales were made pursuant to a government contract and, therefore, qualify for the government exemption provided by Va. Code § 58.1-609.1 4. You contend that collecting tax from the Taxpayer may cause the Taxpayer to violate the terms of its contract with the U. S. Government.
DETERMINATION

Government exemption

Virginia Code § 58.1-609.1 4 provides an exemption from the sales and use tax for "tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States." Title 23 of the Virginia Administrative Code 10-210-693 interprets the exemption for government entities and provides that "[t]he appropriate tax treatment of purchases of tangible personal property by persons who contract with the federal government, the state or its political subdivision, is based upon whether the contract is for the sale of tangible personal property or for the provision of an exempt service. If a contract is for the sale of tangible personal property, a contractor may purchase such tangible personal property exempt from the tax using a resale exemption certificate, Form ST-10. The tangible personal property may be resold to the government exempt of the tax."

In this instance, the Taxpayer failed to collect the tax on the sales to the customer on the basis that the sales were made pursuant to a government contract. The Taxpayer did not make the sales at issue directly to a government entity. It appears that the Taxpayer's failure to apply the tax is based on a memorandum from its customer assuring the Taxpayer that the sales qualified as exempt sales to the federal government. The memorandum and the vendor agreement provided by the Taxpayer reference the Federal Requisition Regulation (FAR), which in Subpart 29.303 addresses the application of state and local taxes to government contractors and subcontractors. Subsection b states:
    • When purchases are not made by the Government itself, but by a prime contractor or by a subcontractor under a prime contract, the right to an exemption of the transaction from a sales or use tax may not rest on the Government's immunity from direct taxation by States and localities. It may rest instead on provisions of the particular State or local law involved, or in some cases, the transaction may not in fact be expressly exempt from the tax.

It is clear under the federal regulation that the Taxpayer's sales to its customer may not qualify for the governmental exemption on the basis that they were procured for the federal government. While the federal regulation does encourage executive agencies to "take maximum advantage of all exemptions from State and local taxation that may be available," this does not alleviate the Taxpayer from its responsibility to determine the proper application of the tax to sales made to its customer, which is not an agency or instrument of the federal government.

Resale exemption

Virginia Code § 58.1-623 A provides that "[a]ll 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."

If the customer resells the property at issue to the federal government, then the Taxpayer's sales to the customer would qualify as exempt sales for resale. To support a resale exemption, the Taxpayer must obtain, at the time of the sale, a properly completed and signed certificate of exemption certifying that the purchase qualifies for an exemption. Form ST-10, the resale exemption certificate, must be used and provided to the Taxpayer by the customer as required in Title 23 of the Virginia Administrative Code 10-210-693. Based on a review of the audit and the information provided with your letter, the Taxpayer failed to obtain a resale exemption certificate from the customer and has not otherwise proven the sales were for resale. Therefore, the auditor properly assessed tax on the sales at issue.

Conclusion

Based on the foregoing, the assessment is correct. The contested sales were not made to a government entity; therefore, the government exemption is not available. Furthermore, the Taxpayer has failed to prove that the sales to the customer were for resale purposes. Notwithstanding this determination, I will allow the Taxpayer 30 days from the date of this letter to provide resale exemption certificates or other documentation to prove the sales at issue were for resale purposes. Please forward the resale exemption certificates or documentation to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attention: *****.

You should note that pursuant to Public Document 01-36 (4/11/01), when a dealer is afforded the opportunity to secure exemption certificates to support untaxed sales, after the performance of an audit, the Department's long-standing policy is to evaluate more closely the validity of the certificate because the taxpayer did not originally rely on the certificate to make the exempt sale.

If the documentation is not received within the allotted time, the assessment will become immediately due and payable, and an updated bill reflecting accrued interest will be issued.

The Code of Virginia and regulation sections cited, along with other reference documents, are available on-line in the Department's Tax Policy Library, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact ***** at *****.
                • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner


AR/51877P

COMMONWEALTH o f VIRGINIA
Department of Taxation

TO WHOM IT MAY CONCERN:
                                                            • i

Under the authority of §§ 58.1-1 and 58.1-110 of the Code of Virginia, I hereby delegate to Gerald Gwaltney, Deputy Tax Commissioner, the authority to sign for me, in my absence, any and all documents, including, but not limited to, affidavits, warrants, rulings, appeals, offers in compromise and sales tax revocations.

This authority shall not extend to matters or documents related to my service on any statutorily created board or commission, including, but not limited to, the Compensation Board and Treasury Board.

This authority shall become effective January 10, 2003, and shall remain in effect until revoked.

    Done at Richmond, Virginia, this 13th day of January 2003.

    Kenneth W. Thorson
    Tax Commissioner

    Acknowledgement: Gerald H. Gwaltney Date:

    Done this 13th day of January 2003 in the City of Richmond, State of Virginia. My Commission expires 9-30-2003

    Notary Public: Sylvia J. Wesson Notary Seal

    Rulings of the Tax Commissioner

    Last Updated 08/25/2014 16:46