06-120 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Automobile dealer repairs and installs replacement parts on vehicles for sale

Topic

Basis of Tax

Exemptions

Date Issued

10-17-2006

October 17, 2006

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

Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period July 2001 through June 2004. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is an automotive dealer licensed by the Virginia Department of Motor Vehicles (the "DMV"). The Taxpayer purchases vehicles that have been wrecked, and in most instances totaled by insurance companies. The Taxpayer repairs and installs replacement parts on these vehicles. All of the vehicles in the Taxpayer's inventory are titled in the name of the Taxpayer. The Taxpayer represents that after rebuilding and inspection by the DMV, the vehicles are held in inventory and listed for sale to the public. The Taxpayer contests the tax assessed on the purchase of repair parts installed on two vehicles, Vehicle 1 and Vehicle 2, titled in its name.

DETERMINATION

Title 23 of the Virginia Administrative Code (VAC) 10-210-990 C provides, in pertinent part, that:

- The retail sales and use tax does not apply to repair and replacement parts and accessories and oil and grease installed on a motor vehicle before or at the time-of sale, lease or rental that are included in the sales price for measuring the motor vehicle sales and use tax or the retail sales and use tax. Repair and replacement parts purchased for installation on motor vehicles not held for sale, lease, or rental are subject to the tax.

With regard to Vehicle 1, the Taxpayer represents that at the time the audit was conducted, the Taxpayer had not made a final decision about the disposition of the vehicle, i.e., whether it would be considered a show car or listed for sale. The Taxpayer further represents that at the time of filing its administrative appeal, the vehicle was still being restored, and that it was not yet ready to be sold. According to the audit report, the Taxpayer told the auditor that this vehicle was a show car, used by the Taxpayer to demonstrate its quality of work to potential customers.

As noted above, Title 23 VAC 10-210-990 provides an exemption from the retail sales and use tax on parts purchased for the repair or restoration of motor vehicles that are held for sale. In this case, the Taxpayer has not provided any documentation supporting its contention that Vehicle 1 is being held for sale. For example, the Taxpayer did not present a list of vehicles in inventory for sale, resale, or consignment that it is required to keep in accordance with Va. Code § 46.2-1529, as evidence that Vehicle 1 may be eligible for this exemption. Absent such documentation, the exemption in Title 23 VAC 10-210-990 does not apply to parts purchased for Vehicle 1.

With regard to Vehicle 2, the Taxpayer represents that the vehicle is titled in the name of the Taxpayer and is currently held in inventory. The Taxpayer further represents that the Taxpayer's owner and the owner's spouse are using the vehicle as a personal vehicle. The Taxpayer states, "Under DMV regulations, rebuilt vehicles held in inventory can be driven by the owner and spouse using an Independent Dealer license tag." The Taxpayer further asserts that there is no specific time limit for using the Independent Dealer license tag on a vehicle used for personal use.

Virginia Code § 46.2-1550 does permit the utilization of a dealer's license plate on vehicles in a dealer's inventory. The statute also provides that the license plate can be used on vehicles from the inventory that are driven by the dealer and the dealer's spouse. The Taxpayer purchased this vehicle in March 2002. In its letter, the Taxpayer states that the owner's spouse has been driving this vehicle "for a longer period of time than the normal average." While such use may be permitted, the Taxpayer must provide documentation, such as that required by Va. Code § 46.2-1529, to support its claim that Vehicle 2 is being held for sale. The Taxpayer failed to furnish such documentation; therefore, I find that the Taxpayer has not proven that Vehicle 2 is held for sale. Accordingly, the exemption provided in Title 23 VAC 10-210-990 does not apply to parts purchased for Vehicle 2.

Based on this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within thirty days of the date of the bill.

The Code of Virginia 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 web site. 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/54320P

Rulings of the Tax Commissioner