Document Number
05-156
Tax Type
Retail Sales and Use Tax
Description
Taxpayer failed to remit use tax on numerous invoice
Topic
Amnesty
Collection of Delinquent Tax
Penalties and Interest
Date Issued
10-04-2005


October 4, 2005




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 January 2001 through December 2003.

FACTS

The Taxpayer owns and operates several restaurants in Virginia. The Taxpayer was assessed tax, compliance penalty, amnesty penalty, and interest following an audit for the aforementioned period. The Department's audit disclosed that the Taxpayer failed to remit use tax on numerous invoices. The Taxpayer contends that Virginia use tax is not due on certain invoices because tax was paid to another state. In addition, the Taxpayer contends that the penalties assessed should be abated, as the only tax deficiency involves a small portion of its purchases. The audit at issue is a third generation audit for the Taxpayer.

DETERMINATION

Tax Paid to Another State

The Taxpayer purchased tangible personal property from its corporate office for use and consumption in Virginia. The corporate office purchased these items in another state and paid the sales tax to that state. The corporate office then invoiced the tax as part of the sales price in the sale of the items to the Taxpayer.

Virginia Code § 58.1-611 provides that "[a] credit shall be granted against the taxes imposed by this chapter with respect to a person's use in this Commonwealth of tangible personal property purchased by him in another state. The amount of the credit shall be equal to the tax paid by him to another state. . . ." [Emphasis added.]

In this instance, the corporate office initially purchased the items and paid the tax in the other state. The sale of the items to the Taxpayer by the corporate office is a separate and distinct transaction. Therefore, the Taxpayer is not entitled to a credit under Va. Code § 58.1-611 for tax paid by the corporate office. Furthermore, there is no evidence that the Taxpayer paid tax to another state for the purchases at issue.

You contend that it is not appropriate to assess the use tax on the items upon which a sales tax has been paid. Virginia Code § 58.1-604 imposes a use tax on the use or consumption of tangible personal property in the Commonwealth. Virginia Code § 58.1-602 defines use as "the exercise of any right or power over tangible personal property incident to the ownership thereof, except that it does not include the sale at retail of that property in the regular course of business." Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-6030 A, "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased."

In this case, the Taxpayer purchased the items from outside Virginia and the items were delivered to the Taxpayer in Virginia for use in Virginia. The Taxpayer did not pay the Virginia sales or use tax on the purchase of the items. In accordance with Va. Code § 58.1-604, the Taxpayer is liable for the use tax on the purchases and they were properly assessed in the audit.

Credit for Use Tax Accrued

An error was made in recording the use tax measure reported by the Taxpayer on Form ST-9. As a result, the amounts included in the audit report and reported on the Form ST-9 are different by $424. The Taxpayer contends that an additional $424 in personal use tax measure should be included in the audit report.

Based on the information provided by the Taxpayer the use tax compliance ratio has been recalculated to include an additional $424 in use tax reported. Including this additional amount does not increase the use tax compliance percentage to the 85% threshold required to avoid the use tax compliance penalty.

Compliance Penalty

Virginia Code § 58.1-635 mandates the application of penalty to tax deficiencies. Title 23 VAC 10-210-2032 A states, "The application of penalty to audit deficiencies is mandatory and its application is generally based on the percentage of compliance determined by computing the dealer's compliance ratio." With regard to third generation audits, the regulation states that penalty will generally be applied unless the Taxpayer's compliance ratios meet or exceed 85% for sales tax and 85% for use tax. For the audit at issue, the Taxpayer's use tax compliance ratio is 36%. Because the Taxpayer failed to meet the required 85% use tax compliance ratio for a third generation audit, the penalty was properly applied. While the Taxpayer's sales tax compliance ratio is commendable, use tax compliance is evaluated separately and must rise to the level established in the regulation to avoid penalty.

Title 23 VAC 10-210-2032 A also states that the application of penalty to audit deficiencies will not be waived on second and subsequent audits for "other than exceptional mitigating circumstances." The Taxpayer has not presented evidence of exceptional mitigating circumstances that warrant waiver of the penalty.

Amnesty Penalty

Virginia Code § 58.1-1840.1 established the Virginia Tax Amnesty Program. Virginia Code § 58.1-1840.1 F provides "[i]f any taxpayer eligible for amnesty under this section and under the rules and guidelines established by the Tax Commissioner retains an outstanding balance after the close of the Virginia Tax Amnesty Program because of the nonpayment, underpayment, nonreporting or underreporting of any tax liability eligible for relief under the Virginia Tax Amnesty Program, then such balance shall be subject to a 20 percent penalty on the unpaid tax. This penalty is in addition to all other penalties that may apply to the Taxpayer."

In regard to your contention that the Taxpayer was not advised of the Amnesty Program, there were sufficient resources available for the Taxpayer to be properly apprised of its eligibility for amnesty for all periods under audit through April 2003. Concurrent with the release of the Department's web site (www.VaTaxAmnesty.com) on August 1, 2003, the Department issued a media release outlining the terms of Amnesty. This information was sufficient to prompt the Taxpayer to review its records for any undisclosed liability. The Taxpayer was under a duty to ensure that the proper amount of tax was remitted to the Department. Based on the foregoing, your request for waiver of the amnesty penalty assessed to the Taxpayer is denied.

CONCLUSION

Based on the above determination, the assessment is correct. An updated bill with interest accrued to date will be sent to the Taxpayer under separate cover. No further interest will accrue provided the bill is paid within 30 days of the date on the bill. Please remit payment to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261­7203, Attention: *****.

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

                • Kenneth W. Thorson
                    • Tax Commissioner



AR/55646.i


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46