06-123 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Taxpayer obtained certificate after the audit it was not accepted in good faith

Topic

Exemptions

Property Subject to Tax

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 a retail sales and use tax assessment issued to your client, ***** (the "Taxpayer"), for the audit period November 2000 through October 2003. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer provides bingo game materials and equipment primarily to nonprofit organizations for their use in fundraising activities. As a result of the Department's audit, the Taxpayer was assessed sales tax on various untaxed sales for which the Taxpayer did not have valid exemption certificates on file from its customers. You maintain that the certificates of exemption filed with the Taxpayer's appeal are sufficient documentation to prove that the contested sales were correctly treated as exempt sales.

DETERMINATION

Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A states:

- All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law.

The regulation goes on to state that a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice. Further, Public Document 98-29 (2/20/98) explains that certificates of exemption obtained during or after an audit situation will be accepted only if the Department can confirm that the customer's use of the certificate was valid and proper for the specific transaction. Dealers that fail to obtain a valid exemption certificate at the time an exempt sale is made do not enjoy the good faith protection discussed in Title 23 VAC 10-210-280 A. Thus, certificates of exemption are subject to greater scrutiny by the Department when obtained by a taxpayer during or after an audit.

Based on the additional documentation provided, I find basis for removing from the audit sales made to the following organizations:

· *****
· *****
· *****
· *****
· *****

***** - The Taxpayer has presented a Form ST-13 from the customer. This customer does not qualify for any of the statutory exemptions listed in former Va. Code § 58.1-609.8. Therefore, the Form ST-13 provided by this customer cannot be used to make exempt purchases. Based on the fact that the Taxpayer obtained this certificate after the audit, the certificate was not accepted in good faith. The sales are properly held taxable in the audit.

***** - The Department's review of this exemption certificate and the entity that made the purchases indicates that the certificate is not valid. The entity named on the certificate is not the customer making the purchases. Another entity cannot use the Form ST-13 for this customer to make exempt purchases. Further, the Department's records indicate that the entity listed on the exemption certificate ceased conducting business under this name effective March 1999. The Taxpayer did not accept this certificate in good faith, as the sales at issue were made in April 2002 and the certificate was obtained after the start of the audit. Sales to this customer will remain in the audit.

***** - In this case, the customer did not qualify for any of the statutory exemptions listed in former Va. Code § 58.1-609.8. Accordingly, the customer's use of the exemption certificate Form ST-13 is improper, and the exemption certificate provided is invalid. Because the Taxpayer obtained this certificate after the audit, the certificate was not accepted in good faith. The sales are properly held taxable in the audit.

CONCLUSION

The audit has been adjusted in accordance with this determination. The outstanding balance of the revised assessment, as shown on the enclosed schedule, is due and payable. No additional interest will accrue provided the outstanding balance is paid within 30 days from the date of this letter. The Taxpayer should return its payment to: Virginia Department of Taxation, Office of Policy and Administration, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *****.

The regulation and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department of Taxation's web site. If you have any questions about this determination or about remittance of the payment, you may contact ***** at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/54459T

Rulings of the Tax Commissioner