Tax Type
Retail Sales and Use Tax
Description
Sales tax not charged, a partial tax was charged, and invalid exemption certificates were accepted
Topic
Collection of Tax
Exemptions
Records/Returns/Payments
Date Issued
03-18-2013
March 18, 2013
Re: 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the audit period January 2005 through December 2007.
FACTS
The Taxpayer is a seller of tires, parts and supplies to the automotive retail industry. The Department's audit disclosed that the Taxpayer made sales for which no tax was charged, a partial tax was charged, and invalid exemption certificates were accepted to support exempt sales. The Taxpayer disagrees with the audit results, contending the auditor disallowed exempt sales to dealers that are resellers, as well as sales supported by exemption certificates. The Taxpayer states that it will continue working with the auditor by providing additional documentation validating the exempt sales erroneously included in the Department's audit.
DETERMINATION
Virginia Code § 58.1-623 states that all sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale or lease of tangible personal property is not taxable is upon the dealer, unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating the property is exempt under the law. This requirement is explained in greater detail in Title 23 of the Virginia Administrative Code 10-210-280, which provides that a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable. The regulation further states that:
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- Reasonable care and judgment must be exercised by all concerned to prevent the giving and receiving of false, fraudulent or bad faith exemption certificates. An 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.
Reasonable care and judgment requires that the Taxpayer review the exemption certificate presented and compare the language of such certificate to the items sold on the invoices. The Taxpayer is expected to review the certificates for completeness, and to have an understanding that the class of items being sold falls within the scope of the wording of the exemption certificate.
The Department has previously ruled in Public Document (P.D.) 98-29 (2/20/98) that the absence of an exemption certificate at the time of a sales transaction or the acceptance of an incomplete or invalid exemption certificate 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 as a result 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.
During the audit, the Taxpayer made sales and received incomplete or invalid exemption certificates or no exemption certificates. The Taxpayer was given ample time to secure valid exemption certificates to prove that the sales held in the audit were exempt. I note that the auditor requested additional information from the Taxpayer at least six times over the span of four years. For those certificates presented that were valid, the transactions were removed from the audit computations. The remaining certificates presented to the auditor were either still incomplete or were dated after the sale date or the items sold or were not covered by the wording of the certificate.
I have been informed that the Taxpayer would like to present additional documentation in an effort to further reduce the Department's assessment. While I understand the Taxpayer's concern with regard to the amount of the deficiency, the continual review of sporadically submitted documentation over an extended period of time is not acceptable. The Taxpayer has been given sufficient opportunity to provide the proper documentation to support its position that the sales assessed in the audit are exempt. Accordingly, I find that the Department's assessment was properly derived from the information that was presented to the auditor, and no further adjustments are warranted.
The balance of the assessment is correct and remains due and payable. An updated bill, with interest accrued to date, will be sent to the Taxpayer shortly. No additional interest will accrue provided the updated bill is paid within 30 days from the date indicated on the bill statement.
The Code of Virginia section, regulation and public document cited are available on-line in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this matter, please contact ***** of the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
Tax Commissioner
AR/1-5167367020.Q
Rulings of the Tax Commissioner