05-130 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Taxpayer must prove taxes were erroneously collected

Topic

Assessment

Date Issued

08-03-2005

August 3, 2005

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period December 1999 through November 2002. I apologize for the delay in the Department's response.

FACTS

The Taxpayer is an out-of-state ("State A") business that sells and installs carpet and ceramic tile in Virginia. The Department audited the Taxpayer and issued an assessment for Virginia sales tax that was collected from Virginia customers but not remitted to the Department. The audit disclosed that the Taxpayer took delivery of its inventory of flooring materials at a warehouse located in State A and transported the materials into Virginia for installation. The Taxpayer itemized material and labor on its invoices and charged customers Virginia sales tax on flooring materials installed in Virginia; however, the Taxpayer failed to remit some of the tax collected from its customers to the Department.

After the Department's audit was completed, State A audited the Taxpayer. The audit and resulting assessment covered a time period that overlapped part of the Virginia audit period. The Taxpayer represents that State A assessed tax on the job materials received at the warehouse located in State A and later used on Virginia jobs. The Taxpayer maintains that the Virginia assessment is erroneous because the job materials are properly taxed by State A, and they should not be subject to tax again by Virginia.

DETERMINATION

Application of tax to materials

In those instances in which the Taxpayer sells and installs carpet or ceramic tile in Virginia, the Taxpayer is acting as a real property contractor and is considered the taxable user and consumer of the materials purchased. The Taxpayer must pay sales tax on its purchases of materials or remit use tax if the dealer is not registered to collect Virginia sales tax. If the Taxpayer purchases and takes delivery of the job materials in State A prior to using the materials in Virginia, a credit is allowed for sales or use tax paid to State A. Virginia use tax is due on the job materials if the tax is not paid to State A. See Title 23 of the Virginia Administrative Code (VAC) 10-210-450. The Taxpayer should not pass the sales or use tax on to anyone else as a tax. It must take the amount of tax into consideration in submitting bids. See Title 23 VAC 10-210-410.

For those materials sold at retail (i.e., without installation), the Taxpayer is considered a dealer of tangible personal property. See Va. Code § 58.1-612. Any Virginia sales tax collected on the sale of carpet or ceramic tile must be remitted to the Department.

A review of the audit report reveals that the auditor's adjustments are consistent with the principles outlined above.

Erroneous collection of tax

Virginia Code § 58.1-625 states in part:

- Any dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously or illegally collected tax unless or until he can affirmatively show that the tax has since been refunded to the purchaser or credited to his account.

Title 23 VAC 10-210-340 interprets Va. Code § 58.1-625 and states, "[a]Il sales and use tax collected by a dealer is held in trust for the state."

In this case, the Taxpayer represented itself as a dealer when it charged and collected Virginia tax from customers on Virginia flooring jobs. The Taxpayer held the tax collected in trust for the state of Virginia and is required by law to remit the tax to the Department. The Taxpayer failed to comply with the requirements in Va. Code § 58.1-625; therefore, the auditor properly issued an assessment for tax collected but not remitted.

To support its position that the Department's assessment is erroneous because State A imposed its tax on the materials at issue, the Taxpayer has provided a copy of the assessment notice issued by State A. The assessment notice, however, does not provide details about the basis of that state's assessment. The Taxpayer has not provided information about State A's assessment and the transactions upon which it is based. For this reason, I am unable to determine if the Taxpayer's collection and payment of Virginia tax was erroneous. The Taxpayer may wish to submit to the Department a ruling request with detailed information about its business transactions in State A.

Even if the Department were to accept your argument that State A's tax is properly due on the property purchased and received in the Taxpayer's out-of-state warehouse, the Virginia assessment is for tax collected from Virginia customers that was not remitted to Virginia. Pursuant to Va. Code § 58.1-625, the Taxpayer is required to remit the tax to the Department "unless or until he can affirmatively show that the tax has since been refunded to the purchaser or credited to his account."

In order for the Taxpayer to receive a refund or an adjustment of the assessment for the Virginia taxes erroneously collected, it must either show that the tax erroneously collected was paid by him and not passed on to the Virginia customers or show that the tax collected from the Virginia customers was subsequently refunded to those customers. The Taxpayer has not provided documentation during the audit or with this appeal indicating that either of the above criteria has been satisfied. Because the assessment at issue is for Virginia sales and use tax that was collected and held in trust for the state by the Taxpayer, there is no basis for adjusting the audit assessment.

CONCLUSION

Based on the determination above, the Taxpayer should pay the balance due of *****, which includes accrued interest, within 30 days from the date of this letter. The Taxpayer's payment may be mailed to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****.

The Code of Virginia section and regulations cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov. If you have any questions concerning this determination, please contact ***** at *****.

- - - - Sincerely,

- - - - Kenneth W. Thorson
        Tax Commissioner

AR/53902S

COMMONWEALTH of VIRGINIA
Department of Taxation

- - - - TO WHOM IT MAY CONCERN:

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.

Sylvia J. Wesson
Notary Public Notary Seal

Rulings of the Tax Commissioner