Tax Type
Retail Sales and Use Tax
Description
Taxpayer assessed tax on untaxed sales to a customer
Topic
Durable Medical Equipment Exemption
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 in which you seek correction of the retail sates and use tax assessment issued to ***** (the "Taxpayer") for the period December 2000 through September 2003. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a retailer of medical equipment, supplies and durable medical equipment. The Taxpayer was assessed tax on untaxed sales to a customer. The Taxpayer contends these sales should be removed from its audit sample because the customer has paid the tax on these transactions through its own audit assessment. The auditor disallowed the removal of the sales from the Taxpayer's audit sample based on Public Document (P.D.) 95-59 (3/27/95).
DETERMINATION
Collection of Tax
Virginia Code § 58.1-625 states:
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- The tax levied by this chapter shall be paid by the dealer; but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser . . . to the dealer until paid and shall be recoverable at law in the same manner as other debts ....
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- Notwithstanding any exemption from taxes which any dealer now or hereafter may enjoy under the Constitution or laws of this or any other state, or of the United States, such dealer shall collect such tax from the purchaser . . . and shall pay the same over to the Tax Commissioner as herein provided . . . .
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- Any dealer who neglects, fails, or refuses to collect the tax on every taxable sale of tangible personal property made by him, his agents, or employees shall be liable for and pay the tax himself ....
The statute imposes the responsibility for payment of the tax upon either the purchaser or the dealer. In this instance, the Taxpayer, as a dealer, is responsible to collect the tax on all taxable sales and to remit such tax to the Department. As such, the auditor was correct in assessing the Taxpayer for the tax on certain untaxed sales.
Sample Method
After reviewing the audit report, I find that the sampling technique was properly applied in this instance. The purpose of the audit sample is to determine an error factor for the entire audit period. While the tax on the transactions in question may have been paid by the Taxpayer's customer, there are likely similar transactions outside the sample period on which the Virginia tax has not been paid. Therefore, to remove the sales in question from the sample base would skew the sample and nullify its validity. See P.D. 95-93 (4/28/95).
The use of the sampling technique to examine sales provides a snapshot of the Taxpayer's compliance with its sales tax collection and reporting responsibilities. The Department's sales sample determines the error rate at which the Taxpayer failed to charge sales tax on untaxed sales without a valid, supporting exemption certificate or direct pay permit held by the purchaser. The sample is not intended to determine the combined compliance of the Taxpayer and its customers.
The Taxpayer made a number of untaxed sales during the sample period that were not supported by exemption certificates or direct pay permits. Although the customer may have paid use tax to the Department as a result of its own audit, this is not a reflection of the Taxpayer's sales tax collection compliance. The inclusion of the customer's use tax payment to offset untaxed sales in the sales sample distorts the Taxpayer's sales tax compliance measurement. The Taxpayer's obligation to collect sales tax on the customer's sales is not dependent on whether such customer paid use tax directly to the Department. The only exception to this general rule is when the purchaser provides the seller with a valid exemption certificate or a valid direct pay permit. See P.D. 04-99 (9/8/04). A customer remitting use tax to the Department as a result of an audit assessment is not sufficient to relieve the Taxpayer from its obligation to collect tax at the time of the transaction. Accordingly, I find that the auditor was correct in including such sales in the audit sample.
The Taxpayer maintains that to disallow a credit for tax paid by the customer on the sales at issue is an attempt to tax the same transactions twice. The Taxpayer's argument is based on the fact that the customer paid use tax to the Department as a result of an audit assessment on the transactions found in the audit sample. The auditor credited the audit liability for the tax paid by the customer for the months they occurred in the sample period. Accordingly, I do not find that the audit sampling techniques applied in this instance constitute double taxation.
CONCLUSION
Based on the foregoing, the assessment is correct as issued. An updated bill, with interest accrued to date, will be sent to the Taxpayer under separate cover. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attention: *****.
The Code of Virginia section 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 Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/54494i
Rulings of the Tax Commissioner