Tax Type
Retail Sales and Use Tax
Description
Taxpayer business leasing and selling printers, copiers and other imaging supplies
Topic
Exemptions
Records/Returns/Payments
Tangible Personal Property
Date Issued
07-30-2008
July 30, 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 June 2001 through November 2003. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is in the business of leasing and selling printers, copiers and other imaging supplies. The Taxpayer contests the assessment of tax on miscellaneous sales, unaccounted exempt sales, unreported sales and fixed assets. Each issue will be addressed separately below.
DETERMINATION
Miscellaneous Sales
The transactions at issue are for combined shipping and handling charges. The Taxpayer maintains that the items included in the exceptions list are based on a projected amount. The Taxpayer contends that these items do not clearly reflect its policy regarding handling charges. The Taxpayer contends that the charge for the logistical planning required to deliver its products to its customers is an added fee for shipping equipment and not a taxable fee.
Virginia Code § 58.1-609.5 3 provides that the retail sales and use tax does not apply to "transportation charges separately stated." Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 A states, "[t]he tax does not apply to transportation or delivery charges added to a taxable sale provided such transportation charges are separately stated on the invoice to the customer. If the transportation or delivery charges are not separately stated on the invoice, they will become part of the sales price of the property and will be taxed."
Public Documents (P.D.) 00-173 (9/28/00) and 06-147 (12/8/06) explain the Department's policy with respect to the taxation of shipping and handling charges.
In this instance, the shipping and handling charges were not separately stated on the invoices included in the sample. In accordance with the cited authorities, the Taxpayer was required to separately state the shipping charges from the handling charges in order for the exemption to apply. In addition, the added fee for shipping equipment constitutes a taxable charge because the sales price includes the "total amount for which tangible personal property or services are sold, including any services that are a part of the sale." See, Va. Code § 58.1-602. Because the shipping charge was not separately stated on the invoice, it becomes a part of the sales price of the property and is subject to the tax. I do not find sufficient cause to allow for a revision of the sample because the purpose of the projection is to account for likely transactions on which the Virginia tax was not properly paid. Additionally, the Taxpayer has not proven that the sample is flawed. Accordingly, the tax is correct as assessed.
Unaccounted Exempt Sales
The Taxpayer contests the extrapolated sales error factor. The Taxpayer maintains that the factor is incorrectly based on the sales factor used in the Virginia Corporate Income Tax return, which includes items not defined as sales for the purpose of reporting receipts on the sales tax return.
Based on the audit findings, the sales error factor is not based on the Taxpayer's Virginia Income Tax return. The factor is based on the exempt sales exceptions (exempt sales where a resale certificate was not presented compared with sales reported on the sales tax return for the sample month). Additionally, the error rate was applied to gross sales that had been reconciled by the Taxpayer.
Based on the information presented, I do not find sufficient cause to allow for a revision of the sample. The Taxpayer has not proven that the sample is flawed. Accordingly, the tax is correct as assessed.
Unreported Sales
The Taxpayer contends that the sales reported on the sales tax returns inadvertently excluded certain exempt sales. The Taxpayer contends that these sales "are not taxable or equivalent to those sales reported for apportionment factor purposes."
Based on the information provided, all exempt sales have been accounted for in the audit. It is unclear how the Taxpayer computed the figures attached to the appeal and labeled as "State of Virginia Lease Gross Sales for 2001, 2002" and "State of Virginia Gross Sales for 2003 OPS and OCE USA". In this instance, the Taxpayer has not proven that the unreported sales figure is incorrect or that the assessment of tax on unreported sales is incorrect. Accordingly, there is no basis for revising the audit.
Fixed Assets
The Taxpayer contends the Fixed Assets exceptions list includes transactions that represent leases sold for resale purposes. The Taxpayer maintains that valid exemption certificates were provided to the auditor for these transactions.
Virginia Code § 58.1-623 A, states, "[a]II sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer, unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter."
Pursuant to P.D. 01-36 (4/11/01), when a dealer is afforded the opportunity to secure exemption certificates to support untaxed sales after the performance of an audit, the Department's long-standing policy is to more closely evaluate the validity of the certificate.
The Taxpayer provided resale exemption certificates while the audit was being conducted that led to the Taxpayer being given credits on the Fixed Assets exceptions list. In support of its contention that the total amount remaining on the exceptions list should be abated, the Taxpayer provided with its appeal a resale exemption certificate for the customer. The Department needs to review both the invoices and the exemption certificate in order to determine the application of tax to these transactions. The exemption certificate alone is insufficient to determine the correct application of the tax. Pursuant to Va. Code § 58.1-623 and P.D. 01-36, the Taxpayer has not met its burden of proving that these line items are exempt sales. Accordingly, the tax as assessed is correct.
I will allow the Taxpayer an opportunity to furnish the invoices that are supported by the resale exemption certificate. The invoices must show who purchased the tangible personal property and lease agreements. The invoices should be provided within 30 days of the date of this letter and sent to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261 7203, Attn: *****. If the information is not submitted within the allotted time, the assessment will be upheld as issued.
CONCLUSION
Following review of the invoices as noted above, the Department will make adjustments to the Fixed Assets exceptions list, as warranted. In all other respects, the assessment is correct as issued. An updated bill, with interest accrued to date, will be mailed to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. The Taxpayer should remit payment to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****. The Code of Virginia sections, regulation and public documents cited are available on-line at www.tax.virgiriia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact ***** at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1363338214P
Rulings of the Tax Commissioner