Tax Type
Retail Sales and Use Tax
Description
The taxpayer appealed the assessment of tax on the lease payments
Topic
Property Subject to Tax
Taxable Transactions
Taxpayers' Remedies
Date Issued
04-20-2007
April 20, 2007
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *********************:
This is in response to your letter in which you seek waiver of the penalty included in the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period April 2003 through March 2006. I note that the Taxpayer has made a payment in the amount of ***** for the assessed tax and interest.
FACTS
The Taxpayer is a manufacturer of equipment used in the production of semiconductors. The Taxpayer was assessed tax on an equipment lease. The equipment was originally purchased for use in California via a five-year lease with biannual lease payments. The lease was treated as a capital lease for California use tax purposes and the Taxpayer paid California sales tax on the total value of the equipment (the total of all lease payments) in the first year of the lease. The Taxpayer began leasing the property in 2002 and in 2004 the property was transferred to Virginia.
In the Department's audit, the Taxpayer was assessed tax on the lease payments for the equipment for the period it was located in Virginia. The Taxpayer requests an abatement of the penalty assessed in the audit.
DETERMINATION
Virginia Code § 58.1-611 provides, in pertinent part, that "[a] credit shall be granted against the taxes imposed by this chapter with respect to a person's use in this Commonwealth of tangible personal property purchased by him in another state."
Pursuant to Title 23 of the Virginia Administrative Code 10-210-450, the credit does not apply to tax erroneously charged or incorrectly paid to another state.
In Public Document (P.D.) 01-39 (4/12/01), the taxpayer leased equipment from out-of-state vendors. The taxpayer took possession of the equipment outside Virginia and paid sales tax to the vendor in the state where the transaction originated. In an audit, the taxpayer was assessed tax on lease payments made once the equipment was transferred to Virginia. The taxpayer appealed the assessment of tax on the lease payments. The Tax Commissioner ruled that if the total tax was properly paid at the inception of the lease to the state in which the taxpayer took possession of the equipment, the assessed use tax on the lease payments would be removed from the audit. If the tax was paid on a month-by-month basis at the time the lease payments became due, it was ruled that the Virginia use tax would be due for those months in which the equipment was being used in Virginia.
In this instance, the Taxpayer paid the total amount of sales tax due on the lease in the first year of the lease to the state of California. Pursuant to Va. Code § 58.1-611 and P.D. 01-39, the Taxpayer is not liable for the Virginia use tax once the equipment was transferred to Virginia because the tax was correctly paid to California. Accordingly, the tax assessed in the audit on the lease payments is incorrect. The Taxpayer will receive a refund of the tax and interest remitted to the Department, plus refund interest. Any remaining balance of the assessment will be abated.
The Code of Virginia section, regulation and public document 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 determination, you may contact ***** in the Department's 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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ARM-954012777P
Rulings of the Tax Commissioner