06-100 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Invalid Certificates of Exemption

Topic

Exemptions

Date Issued

10-05-2006

October 5, 2006

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 May 2001 through March 2004. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a dealer of automotive parts and is registered to collect Virginia sales tax. The Department audited the Taxpayer for the period May 2001 through March 2004 and disallowed two resale exemption certificates the Taxpayer received from its customer, ***** ("Transport Company"). One exemption certificate, Form ST-10, was obtained by the Taxpayer after the close of the audit period. The second certificate was a generic, substitute form from ***** ("Leasing Company") indicating its retail sales and use tax registration number. The auditor disallowed the certificates because they were invalid and incomplete. The Taxpayer contends that it accepted the exemption certificates in good faith and the Department should accept them.

DETERMINATION

Virginia Code § 58.1-623 states that all sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale or lease of tangible personal property is not taxable is upon the dealer, unless he takes, in good faith from the taxpayer, from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. This requirement is further explained in Title 23 of the Virginia Administrative Code (VAC) 10-210-280.

A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable. A valid and complete resale exemption certificate consists of the legal and trade name and physical address of the purchaser (dealer), the type of business engaged in by the dealer, the certificate of registration number of the dealer, the month, day and year the certificate is signed by the dealer, the name and physical address of the dealer, and the signature and title of the person authorized to sign the certificate.

Certificates of Exemption Obtained after the Audit Commences

Certificates secured by a taxpayer at the conclusion of an audit are more closely scrutinized because a taxpayer did not rely on such certificate at the time of sale. Once an exemption certificate is presented to the auditor, the certificate is acceptable only if the Department is able to confirm that the customer's use of the certificate was valid and proper for the specific transaction. The absence of such certificate at the moment of the transaction indicates that such certificate was never accepted "in good faith." Public Document (P.D.) 98-29 (2/20/98) sets out the Department's policy with regard to this issue.

In this case, the Taxpayer did not have on file a certificate of exemption from its customer for sales of parts. The Taxpayer later obtained a certificate of exemption, ST-10, after the audit period. Upon further review, the auditor determined that the certificate of registration number on the exemption certificate was invalid. Therefore, the auditor held taxable in the sample, the sales to this customer. Because the certificate was not accepted in good faith at the time of purchase and included an invalid number, I find no basis to remove the sales to this customer from the audit.

Invalid Certificates of Exemption

Generally, the Department will not permit a substitute form for a resale exemption certificate unless it satisfies all of the criteria set out on the Virginia resale certificate, Form ST-10, and is approved by the Tax Commissioner. In P.D. 97-95 (2/21/97), the Department addresses the minimum information needed for a substitute resale exemption certificate.

In this case, the document provided by the purchaser, Transport Company, does not satisfy all of the information requirements prescribed by the Department in P.D. 97-95. In addition, the substitute form lists the purchaser as Leasing Company; however, the sales invoice indicates the items were sold to Transport Company. Based on the invalid certificate provided, the auditor correctly held taxable the sales to this customer.

CONCLUSION

The exemption certificate and letter furnished by Transport Company are not valid for the reasons noted above; therefore, the sales at issue were properly held taxable and included in the audit sample. The assessment is correct and remains due and payable. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of the updated bill.

The Code of Virginia sections, regulation and public documents 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 Department's Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/55400.i

Rulings of the Tax Commissioner