Document Number
Tax Type
Retail Sales and Use Tax
Untaxed sales transactions.
Collection of Tax
Date Issued

May 25, 2016

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

Dear *****:

This will reply to your letter in which you seek the correction of retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period May 2011 through August 2014.  I apologize for the delay in responding to your appeal.


The Taxpayer is a wholesale distributor of greenhouse and nursery supplies.  The Taxpayer was audited and assessed retail sales tax on untaxed sales identified in a three-month sample of sales.  The auditor determined that the Taxpayer did not have valid resale exemption certificates on file to support the exempt sales held in the audit.

The Taxpayer seeks the removal of these sales from the audit based on copies of exemption certificates and other customer documentation furnished to the Department.  The auditor allowed the Taxpayer additional time to obtain new exemption certificates during the audit.  The audit was subsequently revised to remove some of the untaxed sales transactions based on the updated exemption certificates.  The Taxpayer still contests the inclusion in the audit of sales transactions with six customers.


Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A states, in part, that:

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.

The auditor found that the Taxpayer accepted incomplete resale exemption certificates from some customers.  Some of the certificates were deemed to be invalid because there was no date on the certificates.  Some customers did not indicate which of the three available exemptions on the Form ST-10 was being claimed.  While the Taxpayer was allowed to obtain from its customers new exemption certificates during the audit, the auditor determined that some of the updated exemption certificates were still not acceptable.

Public Document (P.D.) 97-95 (2/21/97) sets out the minimum criteria necessary for a valid resale exemption certificate.  These criteria provide information needed by dealers and the Department to confirm that a customer's use of the certificate is valid and proper for a specific sales transaction.  P.D. 97-95 is based on the provisions of Va. Code § 58.1-623, which states in Subsection B that an exemption certificate “shall be substantially in such form as the Tax Commissioner may prescribe.”

P.D. 11-8 (1/20/11) discusses the good faith acceptance of exemption certificates.  It states that sellers cannot accept incomplete exemption certificates in good faith.  In cases where a taxpayer accepts an exemption certificate that is incomplete or the certificate is obtained during or after an audit, the claim for exemption is subject to greater scrutiny by the Department.  The exemption certificate will be accepted only if the Department can confirm that the customer's use of the certificate was valid and proper for the specific sales transaction reviewed in the audit.  For example, an undated exemption certificate does not allow an auditor to determine if the seller properly accepted the certificate prior to or at the time of an exempt sale.  Thus, there is no evidence that the certificate was accepted in good faith by the seller.

The public documents cited state that a valid exemption certificate must include a date and indicate the specific exemption claimed by the purchaser.  The auditor was correct to question the incomplete certificates accepted by the Taxpayer.  After considering the authorities cited above and based on a review of the exemption certificates, customer documentation and the Department's records, the contested sales exceptions will be addressed by reference to each customer using the number assigned to the customer in the appeal letter.  It is noted that the Taxpayer indicates that sales to Customer #4 are no longer under appeal.

Customer #1 furnished a Form ST-10 dated May 31, 1996, but failed to check a box to indicate the exemption being claimed.  The Taxpayer subsequently obtained an updated Form ST-10 from this customer.  Based on a review of this customer's information, the sales exceptions for Customer #1 will be removed from the audit.

Customer #2 originally furnished the Taxpayer an undated Form ST-10.  The Taxpayer subsequently obtained a completed and valid Form ST-10.  The sales exceptions for Customer #2 will be removed from the audit.

Customer #3 furnished the Taxpayer an undated Form ST-10 and a Form ST-10 without a box checked for the exemption claimed.  The auditor did not remove the sales exceptions because neither Form ST-10 was complete.  Based on a review of the forms and the Department's records regarding this customer, the sales exceptions for Customer #3 will be removed from the audit.

Customer #5 originally furnished the Taxpayer an undated Form ST-10.  The Taxpayer was unable to obtain an updated Form ST-10 for this customer because the business was purchased.  A valid Form ST-10 was obtained from the purchaser of the business.  The Taxpayer has also provided supporting documentation for the purchase of the business.  Based on the information provided, the sales exceptions for Customer #5 will be removed from the audit.

Customer #6 originally presented the Taxpayer a completed Form ST-10.  The Form ST-10 was deemed invalid because the customer entered an incorrect registration number on the certificate.  The Department currently issues to taxpayers registration numbers that include the federal employer identification number (FEIN) of the business. The customer's FEIN on the Form ST-10 was correct.  However, the prefix used with the registration number was “35” instead of “10”, which is the correct prefix for sales tax registrations.  The Taxpayer subsequently obtained a completed Form ST-10 with the correct prefix included as part of the registration number.  This Form ST-10 was deemed unacceptable based on research of the customer conducted by the auditor.  While the registration number was incorrect due to the prefix entered on the exemption certificate, this does not alter the fact that the Taxpayer accepted the Form ST-10 in good faith.  The original Form ST-10 was valid on its face and the Taxpayer could not be expected to know the registration number was invalid.  The sales exceptions for Customer #6 will be removed from the audit.

Customer #7 furnished the Taxpayer a Form ST-10 after completion of the audit. The Form ST-10 was deemed unacceptable by the auditor based on research of the customer's registration information.  Based on further review of the documentation presented by the Taxpayer, the sales exceptions for Customer #7 will be removed from the audit.


In accordance with this determination, this case will be referred to the appropriate field audit staff to revise the audit.  The Department's records indicate that the Taxpayer has paid the audit assessments in full.  A refund of the overpayments as determined by the revised audit liability, plus applicable interest, will be issued to the Taxpayer.  The Taxpayer will be notified in writing and provided a copy of the revised audit report after the audit revisions are completed.

The Code of Virginia section, regulation and public documents cited in this letter are available on-line at in the Laws, Rules and Decisions section of the Department's web site.  If you have any questions concerning this determination, please contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.


Craig M. Burns
Tax Commissioner




Rulings of the Tax Commissioner

Last Updated 06/20/2016 09:12