Tax Type
Retail Sales and Use Tax
Description
Exemption certificates obtained after the start of an audit are not acceptable
Topic
Exemptions
Date Issued
05-25-2007
May 25, 2007
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period September 2002 through August 2005. I note that the assessment has been paid in full.
FACTS
The Department's audit disclosed that the Taxpayer made exempt sales of tangible personal property that were not supported by valid Certificates of Exemption. The Taxpayer subsequently obtained an exemption certificate from the customer; however, the auditor disallowed the certificate stating that it was invalid. The Taxpayer maintains that it could not know that the certificate provided by its customer was invalid and that it accepted the certificate in good faith. The Taxpayer asserts that the sale at issue should be exempt and removed from the audit based on the provisions of Va. Code § 58.1-623.
DETERMINATION
Virginia Code § 58.1-623 provides that all sales or leases of tangible personal property are presumed to be subject to tax until the contrary is established. Title 23 of the Virginia Administrative Code 10-210-280 A interprets Va. Code § 58.1-623 and states:
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- 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 Certificates of Exemption indicating that the property is exempt under the law.
The Department has previously ruled in Public Document 98-29 (2/20/98) that the absence of an exemption certificate at the time of a sales transaction indicates that the certificate was never accepted in good faith. Thus, exemption certificates obtained after the start of an audit cannot be accepted "in good faith" and are subject to greater scrutiny by the Department. Accordingly, such certificates are acceptable only if the Department is able to confirm that a customer's use of the certificate was valid and proper for a specific transaction identified during audit.
The Taxpayer obtained resale exemption certificates from its customer with account numbers that the auditor determined were not valid. The Taxpayer has not provided a valid certificate to support the tax-exempt sales to its customer. For the reasons discussed above, the Taxpayer does not enjoy the good faith protection afforded to dealers that obtain valid exemption certificates at the time of sale. Based on all of the information presented and the fact that a proper, valid Certificates of Exemption has not been furnished for the sale at issue, there is no basis to adjust the audit. Accordingly, the assessment is correct as issued and the Taxpayer's request for refund cannot be granted.
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 website. If you have any questions regarding this determination, please contact ***** of 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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AR/1-600790909Q
Rulings of the Tax Commissioner