07-91 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Taxpayer did not have valid exemption certificates on file from its customers

Topic

Exemptions

Records/Returns/Payments

Date Issued

06-01-2007

June 1, 2007

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued by the Department for the period July 2001 through June 2004.

FACTS

The Taxpayer was audited and assessed sales tax on various untaxed sales for which the Taxpayer did not have valid exemption certificates on file from its customers. The Taxpayer has obtained exemption certificates from some of the customers to whom untaxed sales were made. Based on this information, the Taxpayer seeks the removal of these sales from the audit.

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 . . . However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.

Title 23 VAC 10-210-280 B provides that "[a]n exemption certificate cannot be used to make a tax free purchase of any item of tangible personal property not covered by the exact wording of the certificate."

The Taxpayer was allowed to obtain copies of exemption certificates from its customers during and after the audit for consideration by the Department. The Department has previously ruled in Public Document 98-29 (2/20/98) that an exemption certificate obtained after the start of an audit cannot be accepted "in good faith" and is 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.

Virginia Code § 58.1-205 1 states, "Any assessment of a tax by the Department shall be deemed prima facie correct." The burden of proving that a tax assessment issued by the Department is erroneous is on the taxpayer. Keeping this point in mind with the Department's policy on exemption certificates, I will address each of the certificates included in the Taxpayer's appeal.

**********

These customers have provided the Taxpayer with a Form ST-10 indicating that sales to these customers are exempt under the exemption for tangible personal property sold for resale. The Department's review of the exemption certificates and the entities that used them indicates that the certificates are not valid. The entities named on the certificates were not registered for sales and use tax for the period in which the sales occurred. Based on the fact that the Taxpayer obtained these certificates after the audit, the certificates were not accepted in good faith. The sales to these customers will remain in the audit.

**********

These customers have provided the Taxpayer with a Form ST-10 indicating that sales to these customers are exempt under the exemption for tangible personal property sold for resale. The Department's review of the exemption certificates and the entities that used them indicates that the certificates are not valid. The certificates are dated more than two years after the date of sale. The certificate from ***** lists an invalid registration number. Based on these facts, I find no basis to remove the sales to these customers from the audit.

**********

The auditor noted numerous discrepancies in the exemption certificates provided by these customers. The certificates accepted by the Taxpayer were incomplete. The auditor noted that the certificates were missing the dealer's name, registration number, purpose of property, business type and in some instances indicated an invalid date. As a proper complete certificate of exemption was not provided, the auditor was correct in including the sales in the audit assessment.

CONCLUSION

Based on the above determination, the assessment is upheld. An updated bill with interest accrued to date will be sent to the Taxpayer under separate cover. No further interest will accrue provided the bill is paid within 30 days of the date on the bill.

The Code of Virginia section, 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's website. If you have any questions concerning this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

AR/56412.i

Rulings of the Tax Commissioner