Tax Type
Retail Sales and Use Tax
Description
An insurance company contests the disallowance of credits in the audit
Topic
Appropriateness of Audit Methodology
Credits
Reports
Date Issued
06-26-2008
June 26, 2008
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 for the period July 2004 through June 2007.
FACTS
The Taxpayer is an insurance company. The Taxpayer contests the disallowance of credits in the audit. The Taxpayer also protests the assessment of tax on brochures and on annual reports and statements. Each issue will be addressed separately below.
DETERMINATION
Disallowed Credits
The Taxpayer contends that it made overpayments of use tax during the period January 2004 through June 2005. Relying on Va. Code § 58.1-634, the Taxpayer took credits for these overpayments on its sales tax returns filed for the periods December 2006 through May 2007. The Taxpayer contends that the credits were disallowed in the audit based on an interpretation of Department procedures by the audit staff. The Taxpayer believes that this should not have been a basis for disallowing the credits. The Taxpayer also contends that there was no dispute in the audit that the overpayments were valid and that the adjustments were taken within the period of limitations allowed by law.
When preparing sales and use tax returns, taxpayers must account for exempt sales and other deductions from gross sales allowed by law by utilizing Line 3 on Form ST-9. Line 3 e of Form ST-9A provides that taxpayers must attach a schedule with the sales tax return when taking deductions of this nature. For the credits at issue, the Taxpayer reduced its gross sales amounts on its returns by the amount of the overpayments. The Taxpayer did not account for the overpayment credits on Line 3 as required. Because the Taxpayer did not follow these procedures in accounting for the overpayments on its returns, the credits were not allowed in the audit for the period at issue.
Title 23 of the Virginia Administrative Code (VAC) 10-210-3040 provides, in pertinent part, "A dealer may request a refund for taxes erroneously or illegally collected. The dealer must show that the tax erroneously or illegally collected was paid by him and not passed on to the consumer, or the tax was collected from the consumer as tax and subsequently refunded to the consumer. Refunds cannot be authorized unless the request is made within three years from the due date of the return."
The credits taken by the Taxpayer on its sales tax returns are akin to refunds that can be requested by taxpayers for taxes erroneously or illegally collected. In either instance, the taxpayer must demonstrate that the tax was paid to the Department and that a refund is warranted. For the periods at issue, the Taxpayer reduced its gross sales by the calculated overpayment, without providing proof to the Department that the tax had been improperly remitted. The periods at issue were not covered by the waiver signed by the Taxpayer during the audit (for the periods July 2004 through June 2007), and the Taxpayer did not apply for relief under the protective claim statute. Based on these factors, the audit staff was required to disallow the credits in the audit.
Because the credits were allowed for the periods covered by the waiver, the Taxpayer will be given the opportunity to provide documentation supporting its contention that the disallowed credits reported on the returns outside the audit period should have been allowed in the audit. The Taxpayer must show that the credits were accounted for on its returns within the three-year statutory period and that the overpayments did in fact occur. The audit will be returned to the audit staff. The Taxpayer must provide such documentation to the audit staff for review within 30 days from the date of this letter. Adjustments will be made to the audit, pursuant to this determination, if warranted. If such documentation is not received within in the allotted time or the documentation is not sufficient to support the credits claimed, the assessment will remain as issued.
Going forward, the Taxpayer must adhere to the guidelines established for requesting a credit. The Taxpayer must provide documentation to support its contention that an overpayment of tax has been made. If the Taxpayer's request for a credit is not accompanied by the required supporting documentation, the Taxpayer will not be allowed a credit. Additionally, the Taxpayer must account for the overpayment on the correct line of the Form ST-9.
Brochures
Relying on Title 23 VAC 10-210-3010 H, the Taxpayer appeals the tax assessed on its brochures. The Taxpayer represents that the brochures are mailed to independent agents throughout the country to provide sales incentives information. The brochures provide information regarding the various conventions around the world that the agents can attend if their sales volumes reach a certain level. The Taxpayer contends that the brochures were stored in the Commonwealth for less than twelve months before being distributed outside the Commonwealth. The Taxpayer maintains that these brochures are exempt meeting and convention promotional materials.
Virginia Code § 58.1-609.6 4 provides that the retail sales and use tax does not apply to "[c]atalogs, letters, brochures, reports, and similar printed materials, except administrative supplies, the envelopes, containers and labels used for packaging and mailing the same, and paper furnished to a printer for fabrication into such printed material, when stored for 12 months or less in the Commonwealth and distributed for use without the Commonwealth."
Title 23 VAC 10-210-3010 A states, "Administrative supplies mean, but are not limited to, letterhead, envelopes and other stationary, invoices, billing forms, payroll forms, price lists, time cards, computer cards, certificates, business cards, diplomas and awards. The term also includes supplies for internal use by the purchaser, such as menus, calendars, datebooks, desk reminders, appointment books, employee newsletters, and other house organs. [Emphasis added.]
In this instance, the brochures were used by the Taxpayer to disseminate information to its agents about incentives for achieving sales goals and about conventions available for attendance by the agents. Based on this description, the brochures at issue are deemed house organs for internal use by the Taxpayer. Accordingly, the tax was properly assessed on the purchase of these brochures, and will not be removed from the audit.
Annual Reports and Statements
Relying on Title 23 VAC 10-210-3010 H, the Taxpayer contends that the annual reports and statements held taxable in the audit are exempt from the tax. The Taxpayer asserts that these items are exempt printed promotional materials that were stored in the Commonwealth less than twelve months before being distributed outside Virginia.
The Taxpayer has not provided documentation to support its contention that the printed materials at issue are annual reports that were stored in Virginia for 12 months or less before being distributed outside Virginia. Accordingly, the tax is upheld regarding this issue.
The Code of Virginia sections and regulations 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 Tax Policy, 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/1-2052902104.P
Rulings of the Tax Commissioner