Tax Type
Retail Sales and Use Tax
Description
Taxpayer is not immune from retail sales and use tax prior to the date of exemption letter
Topic
Exemptions
Date Issued
02-14-2006
February 14, 2006
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you request a ruling regarding the application of the retail sales and use tax to ***** (the “Taxpayer”). I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is an entity exempt from federal income taxation under Internal Revenue Code § 501(c)(3). The Department granted the Taxpayer an exemption from the retail sales and use tax pursuant to Va. Code § 58.1-609.11. The Taxpayer’s retail sales and use tax exemption became effective on January 12, 2005, when the letter of exemption was issued by the Department of Taxation. Subsequently, the Taxpayer received a letter from the Department, dated March 22, 2005, indicating that the Taxpayer had been selected for a sales and use tax audit for the period January 2003 through March 2005.
You request a ruling that the Taxpayer is immune from taxation, and therefore, not subject to audit.
RULING
Immunity from Taxation
The Taxpayer maintains that it is exempt from state and local taxation under 15 U.S.C. § 7211. This statute provides that the Taxpayer shall have the power “to conduct its operations and maintain offices, and to exercise all other rights and powers authorized by this Act, in any State without regard to any qualification, licensing, or other provision of law in effect in such State (or a political subdivision thereof).” 15 U.S.C. § 7211(f)(2). While this statute entitles the Taxpayer to certain state and local regulatory and licensing exemptions, it in no way expressly exempts the Taxpayer from state and local taxation. Accordingly, I cannot agree that the Taxpayer is immune from the Virginia retail sales and use tax prior to the date of the Department’s exemption letter.
In the alternative, the Taxpayer contends that as an instrumentality of the federal government, it is exempt from state and local taxation pursuant to the constitutional doctrine of intergovernmental tax immunity. While it is true that an instrumentality of the federal government is exempt from state and local taxation, in this case the Act creating the Taxpayer expressly states the Taxpayer “shall not be an agency or establishment of the United States Government.” 15 U.S.C. § 7211(b). Because the Taxpayer is not an instrumentality of the federal government, the doctrine of intergovernmental tax immunity does not extend to the Taxpayer.
Audit Eligibility
Virginia Code § 58.1-609.11 B provides that “the tax imposed by this chapter or pursuant to the authority granted in §§ 58.1-605 and 58.1-606 shall not apply to purchases of tangible personal property for use or consumption by any nonprofit entity that, pursuant to this section, (i) files an appropriate application with the Department of Taxation, (ii) meets the applicable criteria, and (iii) is issued a certificate of exemption from the Department of Taxation for the period of time covered by the certificate.”
Pursuant to Va. Code § 58.1-609.11, the Taxpayer is not liable for the retail sales and use tax on purchases of tangible personal property for its use or consumption. The Taxpayer’s exempt status does not preclude the Department from performing an audit on the Taxpayer’s records, as provided by Va. Code § 58.1-103 1
, to ensure the Taxpayer is properly utilizing its exemption and complying with Virginia’s tax laws.
The Code of Virginia sections cited 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 response, you may contact ***** in the Department’s Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/55094P
1Virginia Code § 58.1-103 provides that “[a]ll records and documents required by this subtitle or by rule or regulation shall be available during regular business hours for inspection by the Tax Commissioner or his duly authorized agents.”
Rulings of the Tax Commissioner