Document Number
09-45
Tax Type
Retail Sales and Use Tax
Description
Full service banking assessed consumer use tax on purchases of tangible personal property
Topic
Records/Returns/Payments
Tangible Personal Property
Taxable Transactions
Date Issued
04-27-2009


April 27, 2009





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

Dear *****:

This is in response to your letter requesting correction of the retail sales and use tax assessment issued to ***** (the Taxpayer) as a result of an audit for the period February 2000 through April 2002. I apologize for the delay in responding to your letter.




The Taxpayer engages in full service banking. An audit resulted in the assessment of consumer use tax on purchases of tangible personal property.

The Taxpayer states that all facts and documentation are identified in the appeal to support the Taxpayer's claims for removal of the contested items. The Taxpayer contests the assessment on the grounds that the assessment includes:
  • Items upon which the sales tax was charged and collected by vendors,
    Transactions for non-taxable services,
    Items furnished in connection with real property construction services,
    Items delivered outside Virginia for use outside Virginia,
    Electronically delivered property or services,
    Inter-company accounting entries, and
    Improperly assessed marketing charges.

The Taxpayer also requests that the estimated measure for assets be revised after all adjustments are made. Lastly, the Taxpayer requests the waiver of all penalties.

DETERMINATION


Records

You contend that it is unreasonable and unduly burdensome to expect line by line documentation for all disputed items. You cite how much trouble it would be to gather the documentation for the disputed items. Instead, in many instances where the invoice was not found or is difficult to retrieve, you have provided samples of invoices not held in the audit to illustrate that the vendor was either charging the Virginia retail sales tax or that an exemption applied.

I am concerned by your efforts to claim an exemption or payment of the sales tax simply by furnishing a sampling of invoices that may not relate directly to the items held in the audit. Generally, the Department conducts a detailed audit of fixed assets and a representative sampling of expensed purchases. When untaxed exceptions are found and assessed, Va. Code § 58.1-205 1 places the burden of proving that the tax does not apply upon the taxpayer assessed with the tax. Thus, it is the Taxpayer's responsibility to prove that the tax was paid on each transaction. It is also the Taxpayer's responsibility to prove that a specific transaction is exempt from the tax. For instance, pursuant to Va. Code § 58.1-623 A, all sales are taxable until the contrary is established.

Furthermore, pursuant to Va. Code § 58.1-633, the Taxpayer is responsible for maintaining suitable records of purchases and leases to substantiate its use tax liability and preserving "other pertinent information as may be required by the Tax Commissioner." In this regard, Title 23 of the Virginia Administrative Code (VAC) 10-210-470 requires the maintenance of records for "all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase." [Emphasis added.] Thus, as set out in Public Document (P.D.) 92-36 (4/23/92), each purchase transaction stands on its own and must be analyzed individually as to how the tax applies.

Moreover, the law makes no presumption that a vendor collects the tax, nor does the law presume that the purchaser has been charged the tax. Rather, the law requires the maintenance of the transactional records. Merely submitting a sampling of invoices in place of the actual invoices in question is not sufficient because such sampling only illustrates the vendor's tax collection practices with respect to unrelated purchases. The Taxpayer's sampling does not substantiate the tax liability of each purchase held in the instant audit as required by the regulation. As such, it is not acceptable for sales and use tax purposes and is contrary to the audit process.

To summarize, you contend that the Taxpayer has met its records obligation without producing the necessary records to substantiate its tax liability. However, the Taxpayer failed to provide sufficient documentation for all deficiencies to establish that sales tax was charged and collected by vendors, use tax was remitted on untaxed purchases, or an exemption was applicable. The Taxpayer also failed to provide a complete general ledger or chart of accounts.

The Taxpayer also claims that the audit was prematurely ended by the auditor's withdrawal from preliminary discussions and negotiations before issuing the assessment. It is my understanding, however, that the audit was conducted over a period of almost three years. Yet, the Taxpayer was unable during that period to provide all the records needed for the audit.

With all of the foregoing in mind, I will address the specific issues raised in your appeal. Unless otherwise indicated, each issue represents untaxed exceptions from one vendor.

Vendor tax collections

Contested Assets: Lines 1-8, 55, 75-85, 104-133, 220-261 295-302 413 420-435, 447-450, 501-540, 660-693, 752-775, 780-807, 961-1045, 1052-1150, 1294-1352, 1364­1401, and 1466-1482: These items represent purchases of office furniture. The Taxpayer maintains that all these line items should be removed from the audit based on the sample documentation presented. According to the documentation, several of the amounts and descriptions of the invoices presented reconcile to the amounts and descriptions on the exceptions list. Because sales tax was charged by the vendor in those instances, lines 8, 55, 75, 78-85, 110-119, 132, 133, 225-242, 300, 425-429, 431, 433, 754, 764, 782-785, 788-790, 978-983, 1139-1144, 1352, 1389-1391, 1400, 1401, and 1466 will be removed from the exceptions list.

This vendor submits that it was previously audited by the Department for a period that falls within the Taxpayer's audit period and that there were no findings or claims with respect to the Taxpayer. These claims do not provide sufficient reason for the removal of any of these purchases from the exceptions list because such claims are of a general nature and do not provide specific information on the transactions in question as to allow the Department to substantiate the collection of sales tax by the vendor. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to the remaining charges. Accordingly, the tax on the remaining charges is upheld.

Contested Assets: Lines 10, 560, 1402-1407, and 1484-1528. These items are purchases of furniture. The Taxpayer maintains that the vendor charged and collected the sales tax on all of these items. Based on the documentation provided, some of the amounts and descriptions of the invoices reconcile to the amounts and descriptions on the exceptions list. Because sales tax was clearly charged by the vendor in those instances, lines 1505, 1506, 1508-1510, 1512-1514, 1521 and 1522 will be removed from the exceptions list. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to the remaining charges. Accordingly, the tax on the remaining charges is upheld.

Contested Assets: Lines 11-14, 437, 454, and 555-557: Based on the provision of one invoice showing sales tax charged by the vendor, the Taxpayer requests the removal of all the remaining items. Based on that documentation, line 11 will be removed from the exceptions list. As for the remaining items, the Taxpayer has not met its burden of proof pursuant to Va. Code § 58.1-205 1. Absent the invoices to show that sales tax was charged by the vendor, the tax on the remaining charges is upheld.

Contested Assets: Lines 15-20, 59-67, 91, 92, 139-143, 455-481, 570-578, 810-921, 1155-1252, and 1408-1462: The Taxpayer provides a sampling of nine invoices to demonstrate that this vendor was billing and collecting the sales tax on all taxable transactions. The Taxpayer requests the removal of all these items.

Of the nine invoices presented, only three invoices could be reconciled to the items held in the audit, i.e., lines 15, 16 and 91. These will be removed from the exceptions list because Virginia tax was paid on lines 16 and 91 and exempt installation labor was only charged on line 15.

Two other invoices are duplications of the invoices provided for lines 15 and 16. None of the remaining four invoices match any of the invoices held in the exceptions list and three of them were incomplete invoices, i.e., missing pages. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to the remaining charges. Accordingly, the tax on the remaining charges is upheld.

Contested Assets: Line 31: Based on the documentation presented, this item will be removed from the exceptions list.

Contested Assets: Lines 56, 57, 86, 87, 134-138, 262-272, 414, 436, 451, 541-554, 568, 635-637, 776, 808, 1151, 1353, and 1483: Based on the documentation presented, several invoices correspond to certain line items held in the audit and show that sales tax was collected by the vendor. These are lines 265, 269, 272, 541, 543, 544, 545, 546, 547, 548, 549, 552, 635, 637, and 776. These line items will be removed from the exceptions list. Other like amounts charged by the vendor will be removed from the exceptions list because they include sales tax charges. Accordingly, lines 86, 87, 134, 135, 137, 138, 262­264, 266-268, 414, 808, and 1353 will be removed from the exceptions list.

Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to the remaining items. Accordingly, the tax on the remaining line items is upheld. Those items are lines 56, 57, 136, 270, 271, 436, 451, 542, 550, 551, 553, 554, 568, 636, 1151, and 1483. Based on the documentation presented, there is no convincing proof that these transactions include Virginia retail sales tax charges. Furthermore, although you submit a sample invoice with no tax charged and an unrelated sample invoice billing for tax only, this is insufficient proof to establish that the invoices represented by lines 542, 550, 551, 553, 554, and 636 were subsequently billed for the sales tax by the vendor and then paid by the Taxpayer.

Contested Assets: Lines 68, 95, 305, 415, 438, 579, and 694: Based on the documentation presented showing that sales tax was charged on these transactions, these line items will be removed from the exception list.

Contested Assets: Line 146: You maintain that Virginia sales tax was paid on this transaction. The invoice presented shows no sales tax charge by the vendor. Rather, a tax amount has been written on the face of the invoice, which may represent a claim of use tax accrual. However, no evidence has been provided that the Taxpayer self accrued the tax, notwithstanding the amount entered on the Taxpayer's fixed asset listing. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on this item is upheld.

Contested Assets: Line 411: Based on the invoice presented showing sales tax was charged, this line item will be removed from the exceptions list.

Contested Assets: Lines 417-419, 498, 499, 622-628, and 659: Based on the six invoices presented, the Taxpayer maintains that sales tax was paid to the vendor on all these line items. Of the six invoices presented, four of them reconcile to lines 624, 625, 626, and 659. Because sales tax was correctly charged, these four line items will be removed from the exceptions list.

For the remaining two invoices provided, one is not legible and the other was not held in the audit.

Contested Assets: Line 558: The invoice furnished shows that Virginia sales tax was paid. Accordingly, this line item will be removed from the exceptions list.

Contested Assets: Line 1154: Because sales tax was correctly charged, this line item will be removed from the exceptions list.

Non-contested Purchases: Line 16: The Taxpayer maintains that sales tax was paid on this transaction. The documentation provided shows that Virginia sales tax was charged only on the charges for the tangible products. No sales tax was charged on services provided in connection with this transaction. Virginia Code § 58.1-602 defines the taxable sales price to include any services that are part of the sale. Accordingly, the untaxed service charges, as well as one-half of the maintenance fee, will remain in the audit.

Nontaxable services

Contested Purchases: Line 1: You maintain that this line item should be removed from the exceptions list because the vendor typically charges Virginia sales tax on its invoices or the transaction is nontaxable. The documentation provided is only a copy of the payment page that details nothing about the specifics of the transaction. You also have not submitted any additional documentation as you said you would. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on this charge is upheld.

Contested Purchases: Lines 3 and 4: Based on the specific transaction records provided, these transactions are for nontaxable services and will be removed from the exceptions list.

Contested Assets: Lines 73, 100, and 779: The Taxpayer maintains that these transactions are for installation services only. Based on the documentation provided, line 100 appears to correspond to one of the invoices presented. Accordingly, line 100 will be removed from the audit. The remaining invoices are not legible. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to lines 73 and 779. Accordingly, the tax on these remaining items is upheld.

Contested Assets: Lines 145, 922, and 1046: The Taxpayer claims that these transactions are for installation and labor services only. Based on the invoices provided, these line items will be removed from the exceptions list.

Contested Assets: Line 559: You maintain that this line item should be removed from the exceptions list because most of the transactions from this vendor are for nontaxable labor. The invoices provided are not for the transaction at issue, and you represent that the actual invoice could not be located. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on this charge is upheld.

Non-contested Purchases: Line 23: You maintain that this line item should be removed from the exceptions list because the vendor is a service provider and not a retailer of tangible personal property. The invoice provided is not for the transaction at issue, and you represent that the Taxpayer was unable to locate the invoice. You present an invoice showing a billing for a magazine advertisement and claim that it is similar to the invoice in question. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on this charge is upheld.

Real property services

Contested Assets: Lines 21, 22, 93, 94, 144, and 644: The Taxpayer claims to have either paid the sales tax to the vendor or accrued the use tax on the items. The Taxpayer claims that vendor correspondence addresses the deal drawer of line 644. However, that correspondence refers to invoices #9682, #1057, and #10504. Of those three, only invoice 9682 was provided.

Line 94 appears to match invoice #9682 since the amounts are the same and appear unique. The transaction is for a deal drawer that was furnished in accordance with a proposal dated November 10, 1999. The invoice mentions nothing about installation by the vendor. However, the vendor's correspondence indicates that the transaction is for replacement of a deal drawer.

When a vendor sells and installs a deal drawer, the transaction will be treated as the exempt sale of real property services. Public Document (P.D.) 94-207 (6/28/94) responds to a ruling request letter in which the taxpayer included deal drawers under the category of drive-up windows, which P.D. 94-207 treats as real property installations. This is consistent with P.D. 91-166 (8/7/91), in which automatic teller machines installed directly in the side of the actual bank building were treated as real property installations. Based on the documentation provided, line 94 will be removed from the exceptions list.

Line 21 is for a countertop intercom. You provide an invoice for a similar transaction that shows no sales tax charged. Pursuant to Title 23 VAC 10-210-5040 A, the tax applies to the total charge for the sale or lease of intercom systems, except separately stated installation charges are not taxable. For this reason, I find no basis to remove Line 21.

As for the remaining items, I find no basis to remove them because none of the remaining invoices provided were included in the audit.

Contested Assets: Lines 54, 400-410, and 567: Based on the documentation provided, the vendor of these transactions is a real property service contractor. Some of the invoices provided describe the work as demolition and repair or bank construction. Those invoices correspond to lines 406, 407, 410 and 567 and will be removed from the exceptions list. Some invoices correspond to lines 405, 408, and 409 but only provide a vague description, such as "[Taxpayer' name]/Demo/[Store name]." As such, it is not possible to determine the true nature of the transaction from this description. These transactions also do not appear to be for real property services. For instance, line 401 is for the purchase of six rolling greeter desks. I also understand that the description for line 400 is for furniture. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to lines 54, 400-405, 408, and 409. Accordingly, the tax on these remaining items is upheld.

Contested Assets: Lines 303, 304, and 569: Because the transactions for lines 303 and 304 are shown to be invoiced prior to the audit period, they will be removed from the exceptions list. You claim that line items 304 and 614 are the same. However, I see no relationship. These line items have completely different amounts and descriptions.

With respect to line 569, this transaction appears to be for the sale and installation of an energy management system consisting of a main energy master, a pulse power meter, a server, cable, temperature sensors and other items. Although this system may become an integral part of an HVAC system, you have not furnished any evidence to establish how such system is installed into the realty or explained how such system is designed to interact with an HVAC system at the Taxpayer's facility. All sales made in Virginia are subject to the sales tax until otherwise established. Absent convincing evidence that this system does not remain tangible personal property upon installation, the Taxpayer has not met its burden of proving that tax does not apply. Accordingly, the tax is upheld on line item 569.

Contested Assets: Lines 629, 630, 639-643, and 649: You maintain that these transactions are for permanent installations of carpet. You further maintain that all of the Taxpayer's buildings have cement flooring and require glued down carpet. In support of this claim, you cite Title 23 VAG 10-210-410 G, which treats persons who sell and install floor coverings that become permanently attached to the floor as consuming contractors. I would note, however, that not all glued down carpet results in a permanent installation. See P.D. 85-194 (10/15/85) and P. D. 89-252 (9/21 /89).

You furnish invoice #18125 dated December 27, 2000. This invoice is for the provision and installation of carpet but was not included in the audit. You also furnish invoice #17779 dated November 1, 2000 that corresponds to line 649. This invoice mentions no installation. Without a charge for installation on the invoice, I find no basis to conclude that the transaction included installation. Because the Taxpayer has not met its burden of proof for any of these line items, the tax on these charges is upheld.

Non-contested Purchases: Lines 17-19: You maintain these line items should be removed based on the same reasons provided for lines 21, 22, 93, 94, 144 and 644 of the contested assets. The Taxpayer furnished no documentation for these specific items. However, the auditor presented copies of the invoices and work orders for these transactions. These invoices show that the Virginia vendor sold window shades with installation. As such, these transactions are subject to the special regulation set out in Title 23 VAC 10-210-410 G, which treats the sale and installation of window shades as either a retail sale or a real property contract sale depending upon whether or not the vendor operates as a retailer as defined in the regulation. Because the vendor did not charge sales tax, it did not treat these transactions as taxable sales but as real property contract sales. Accordingly, I will remove lines 17, 18, and 19 from the exceptions list.

Items delivered out of state

Contested Purchases: Line 2: This charge is for a maintenance contract. The Taxpayer furnishes a spreadsheet claiming that a small portion (***** out of *****) is attributable to Virginia assets pursuant to the Taxpayer's internal documents. The documentation presented, however, is incomplete. Based on the responsibility code (RC) numbering, it is clear that you have furnished a listing of Virginia assets. However, it is not certain whether any more Virginia assets are part of this particular transaction since the entire spreadsheet was not presented. Furthermore, I understand that the auditor requested, but never received, the A/P Distribution Report or similar records to determine what items and costs were expensed to Virginia during the July 2000 sample month. Without these records, it is not possible to verify the extent of Virginia assets related to this maintenance contract.

Contested Assets: Lines 23-30, 69-72, 97-99, 147-150, 274-276, 306-309, 440, 1047, and 1048: Based on the seven invoices presented, the Taxpayer maintains that it paid sales tax on all its purchases shipped to or for use in Virginia. The Taxpayer also claims that some items were delivered outside Virginia for use outside Virginia.

The documentation provided shows that the vendor taxed some, but not all, of the taxable charges listed in connection with lines 149 and 308. The taxed portion of those charges will be removed from the exceptions list. The separately stated installation charges, which are specifically described as such, will also be removed from the exceptions list. The untaxed portion claimed to be installation charges are described as custom image and supplemental service charges and will remain in the audit pursuant to the sales price concept set out in Va. Code § 58.1-602. This statute defines the taxable sales price to include any services that are part of the sale. Because there is no specific exemption from the tax for custom image charges or supplemental service charges, such charges will remain in the audit. As such, line 308 will be reduced from ***** to *****. Line 149 will also be reduced from ***** to *****.

Lines 27 and 440 will be removed from the exceptions list because the invoices show these items were delivered to the Taxpayer outside of Virginia. Lines 275 and 276 will also be removed from the exceptions list because the sales tax was correctly charged on the related invoices. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to the remaining charges. Accordingly, the tax on the remaining charges is upheld in full.

Contested Assets: Lines 412 and 1363: The Taxpayer claims these items represent sales of tangible personal property shipped to the Taxpayer outside Virginia. The two invoices submitted by the Taxpayer (i.e., invoice #0014982-IN and the partially copied invoice #00134) were not included in the audit.

However, the auditor retained copies of the invoices related to both of these transactions. Based on invoice #14981 and other documentation, I find basis for concluding that line 1363 is only a charge for exempt delivery and installation of a kiosk. Accordingly, line 1363 will be removed from the exceptions list.

Line 412 is assessed based on the charge noted in invoice #13676. This invoice is for the repair and repainting of a damaged bank canopy. Because the repair services are performed on real property, line 412 will be removed from the exceptions list.

Contested Assets: Lines 439 and 778: You maintain these line items should be removed from the exceptions list because the vendor typically charges Virginia sales tax on its invoices or delivers to non-Virginia locations. The invoices provided are not for the transactions at issue. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on these charges is upheld.

Contested Assets: Lines 945-960 and 1544-1546: Lines 945 through 960 represent non-taxed configuration charges made in connection with the sale of certain computers that were initially shipped to North Carolina but subsequently shipped to Virginia for use. Lines 1544 through 1546 represent charges for laptops. Because the documentation shows that line items 1544 and 1546 were delivered to the Taxpayer in North Carolina, they will be removed from the exceptions list. For line 1545, the invoice shows that the vendor delivered the merchandise to a Virginia location and charged a Virginia sales tax on only the amount charged for the laptop. No tax was charged on configuration service charges. Accordingly, the amount charged for the laptop will be removed, but separately stated configuration service charges totaling ***** will remain in the audit because no statutory exemption is applicable. Lines 945 through 960 will remain in the audit as they represent the untaxed portion (configuration charges) of laptops used in Virginia.

Electronically delivered property

Contested Assets: Line 634: You maintain that this prewritten software was delivered electronically to the Taxpayer based on a 2001 intra-company e-mail stating that certain software was received electronically. You contacted the software producer to locate the tax exemption certificate that, according to the e-mail, was furnished to the software producer. You indicate that the certificate will be forwarded to the Department upon its receipt. However, the Department has not been furnished the certificate. In this regard, it is not clear how this exemption certificate would be relevant to the transaction at issue, which is with another company, not the software producer. You indicate that such other company is no longer in business.

The e-mail communication, by itself, is not convincing evidence because no record of the transaction has been provided. It is not clear that the invoice that is the subject of the e-mail is the same invoice at issue. Furthermore, to establish the electronic transfer of software, you must generally furnish substantive evidence, such as a copy of the licensing agreement and delivery documentation (such as a dated receipt from the seller showing a successful download of this specific software application). In the absence of substantive evidence, the tax on this charge is upheld.

Inter-company accounting entries

Contested Assets: Lines 40-53, 395-399, 486-490, 561-566, 580, 581, 616-621, 645-648, 650-658, 924-943, 1255-1293, 1354-1361, and 1530-1543: Because of the way these line items are coded, the Taxpayer maintains they are construction in progress (CIP) projects and not purchases from individual vendors. Because these are accounts of CIP projects and contain purchases from several vendors and contractors, I understand that they were booked as "unknowns" when moved from CIP accounts to fixed assets. The Taxpayer furnishes several CIP files to show that these items are nontaxable construction projects or taxed purchases of tangible personal property.

Line 395 is a purchase of a kiosk. The documentation provided shows that the purchase was made prior to the audit period and the Taxpayer accrued use tax. For these reasons, the item will be removed from the exceptions list.

Line 396 is a purchase of an after-hour depository. Because sales tax was correctly charged on the invoice, this line item will be removed from the exceptions list.

Line 397 will be removed from the exceptions list based on the information presented.

Line 399 is described as an access control system. Because sales tax was correctly charged on the invoice, it will be removed from the exceptions list.

Lines 486 and 487 are purchases of after-hour depository and safe deposit boxes. Because sales tax was correctly charged, these items will be removed from the exceptions list.

Lines 488 and 489 involve improvements to realty. Accordingly, these line items will be removed from the exceptions list.

Line 490, according to the auditor, is for the purchase and installation of a suite access control system. There is no sales tax charged on the invoice. While this appears to be a security system, the invoice does not provide sufficient clarification to determine whether this transaction is for a monitored or non-monitored system as defined in Title 23 VAC 10-210-230. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply to this charge. Accordingly, the tax on this charge is upheld.

You maintain that Line 561 should be removed from the exceptions list because the invoice presented represents this line item. The invoice shows that the sales tax amount printed on the invoice has been crossed through and replaced with a sales tax amount based on a 4.5% rate. No evidence has been provided that the vendor re-issued a new invoice with the revised sales tax amount. Without such evidence, I find no basis to conclude that the vendor actually charged a Virginia sales tax. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on this charge is upheld.

Line 562 is for labor installation and repair based on the invoice provided. Accordingly, it will be removed from the exceptions list.

Line 563 is an 'upfit' to the eighth floor of the Taxpayer's building but is noted as a tenant improvement. Based on the documentation presented, it is not clear whether the transaction is for a permanent or temporary improvement to the building. As such, the true nature of this transaction has not been established. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on this item is upheld.

Line 564 is to furnish and install a sliding door at a Virginia location. Because the transaction is for real property fixture installation services, based on the invoice provided, and the date of the invoice is before the audit period, it will be removed from the exceptions list.

Line 565 will be removed from the exceptions list, based on the documentation presented and the auditor's examination of other documents and information related to this particular project.

Line 566 shows that this line consists of bank construction, professional services, exempt labor charges, and taxed under-counter equipment and other tangible personal property. Accordingly, this line item will be removed from the exceptions list based on the documentation provided.

Line 581 is reconciled to invoice #21815 for ***** (coded to RC #6022740 and Inventory #009973600100). Because the full amount of Virginia sales tax was collected, this item will be removed from the exceptions list.

Line 616 will be removed from the exceptions list based on the documentation presented.

The Taxpayer claims that Line 618 is assessed twice, i.e., lines 618 and 304 are the same. However, invoice #7486 submitted for line 304 of the contested assets is dated for December 30, 1999. Whereas, invoice #7629 submitted for line 618 is dated for May 1, 2000. Furthermore, these invoices are for completely different projects. For these reasons, I find no duplication as claimed.

It appears that the transaction for line 618 is for the provision and installation of an energy management system that may have become an integral part of an HVAC system. However, you have not furnished any evidence to establish how such system is installed into the realty or explained how such system is designed to interact with an HVAC system at the Taxpayer's facility. As previously stated, all sales made in Virginia are subject to the sales tax until otherwise established. Absent convincing evidence that this system does not remain tangible personal property upon installation, the Taxpayer has not met its burden of proving that tax does not apply. Accordingly, the tax is upheld.

Line 619 will be removed from the exceptions list based on the documentation provided.

Contested Assets: Lines 32-39, 152-211, 279-291, 310-393, 482-485, 582-615, 695­749, 923, and 1254: You maintain that these line items should be removed from the exceptions list because these vendors typically charge Virginia sales tax. You also maintain that these items were booked as unknowns most likely because of a transfer from CIP accounts to specific fixed asset accounts. The invoices provided are not for the transactions at issue. No evidence has been provided that the vendors correctly charged and collected the sales on these specific transactions. Pursuant to Va. Code § 58.1-205 1, the Taxpayer has not met its burden of proving that the tax does not apply. Accordingly, the tax on these charges is upheld.

Marketing charges

Contested Purchases: Line 5: This amount represents the estimated untaxed marketing expenses incurred in Virginia. The Taxpayer claims that this amount is excessive because the estimate uses account information from the merged entity. It is my understanding that the merger took place in April 2002, which is the last month of this audit.

I understand that the auditor made various written and verbal requests to the Taxpayer for full documentation of the marketing expenses prior to generating the assessment. Although the Taxpayer allocates a portion of its marketing expenses to Virginia, I understand that the Taxpayer's marketing accounts were missing from the general ledger listing furnished by the Taxpayer at the beginning of the audit. Although a listing of vendor names used in the marketing expenses was subsequently furnished to the auditor, the Taxpayer had not furnished any amounts for the selected expense accounts, including marketing accounts, to facilitate in the computation of the error factor. As a result, the estimated amount for marketing expenses was computed based upon the only information available to the auditor at the time of the audit, i.e., the marketing information from the merged entity. Furthermore, the Taxpayer has not furnished any supporting documentation for the marketing expenses with its appeal. Because no supporting records were provided, the Taxpayer has not met its burden of proof and remains liable for the estimated tax liability in this area.

Assets revised

Contested Assets: Line 1547: This line represents an estimate of the possible missing assets for January through April 2002. The Department will re-estimate this line after all removals and adjustments have been made to the audit.

Penalty

The Taxpayer requests waiver of all penalties on the grounds that it exercised reasonable care in complying with its sales and use tax obligations. On second audits, Title 23 VAC 10-210-2032 A 2 requires the application of a 30% penalty if the use tax compliance ratio does not meet or exceed 60%. In this case, the Taxpayer's use tax compliance ratio is 2%. The revisions set out in this determination will not significantly increase the Taxpayer's use tax compliance to an acceptable level.

Furthermore, pursuant to Va. Code § 58.1-1840.1 F 1 and section C 4 j of the Virginia Tax Amnesty Guidelines, the 20% amnesty penalty cannot be waived since the 30% compliance penalty still applies. Finally, the Taxpayer has not submitted any documentation to the Department's auditor to exercise the option to compute a separate use tax compliance ratio under the alternative method for penalty waiver. See P.D. 00-98 (5/25/00) and 00-115 (6/23/00). For these reasons, I find no basis to waive any of the penalties, except in connection with the tax on those items already agreed upon for removal from the exceptions lists.

CONCLUSION


The assessments will be revised in accordance with this determination. Upon completion of the revisions, updated bills, with interest accrued to date, will be sent to the Taxpayer. The outstanding balances should be paid within 30 days of the bill dates to avoid additional interest charges. The Taxpayer should remit its 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 assessments, you may contact ***** at *****.

The Code of Virginia sections, regulations and public documents 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 about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,


                • Janie E. Bowen
                  Tax Commissioner



AR/1-957601464.R


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46