February 2, 2018
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your filing of an administrative appeal in which you seek the correction of a retail sales and use tax assessment issued to ***** (the “Taxpayer”) for the period January 2013 through December 2015. I apologize for the delay in responding to your request.
FACTS
The Taxpayer sells, installs and services audiovisual, security, lighting, point of sale and network systems. The Department audited the Taxpayer and assessed the retail sales tax on untaxed retail sales made during the audit period. The Taxpayer was not registered with the Department to collect and remit the sales tax. Rather, the Taxpayer operated as a using and consuming contractor during the period that was audited. As a result, the Taxpayer paid vendors the sales and use tax on the purchase of items that were subsequently assessed as retail sales transactions in the audit. The Taxpayer maintains that a credit should be allowed in the audit for the sales taxes paid on the purchases for resale. The auditor advised the Taxpayer to request refunds from the vendors to whom the sales and use taxes were paid in error. The auditor provided the Taxpayer refund authorization letters to facilitate the refund requests.
Subsequent to the filing of this appeal, the Taxpayer notified a member of my staff that it was unable to obtain refunds from some of the vendors for the full amount of the sales taxes paid in error. The Taxpayer requests that the Department refund the sales taxes that were not refunded by the vendors.
DETERMINATION
Virginia Code § 58.1-603 imposes the sales tax on “every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth ....” “Retail sale” is defined, in part, in Virginia Code § 58.1-602 as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter ....” (Emphasis added.) The Taxpayer has paid the audit assessment in full and requests that the Department refund the sales taxes that were not refunded by the vendors. The Department's auditor confirmed that sales taxes paid by the Taxpayer on various purchases for resale were eligible for refunds. The Taxpayer provided a spreadsheet that lists the refund information including vendors, invoice numbers and the tax amounts paid. The spreadsheet information was verified by the auditor, with some minor changes made.
The Department's policy with respect to refunds of sales taxes erroneously paid to vendors is addressed in Public Document (P.D.) 96-358 (12/06/96). The Department prefers that the dealer that made the sale refund the tax to the customer to prevent misallocations of the 1% local sales tax and to take into account any dealer's discount that may have been taken on the return filed by the dealer to report the sales transaction. Typically, refunds of this nature are not included as credits in the Department's audits for these reasons.
Title 23 of the Virginia Administrative Code 10-210-3040 also addresses refunds for erroneously collected sales taxes. The regulation states that the amount of a sales tax refund will be “the net amount of state and local tax remitted by the dealer to the state on the transaction(s) generating the refund.” If a dealer files a timely return and deducts the dealer's discount for the period for which the refund is claimed, the refund amount is reduced by the dealer's discount taken. As such, if the dealer or the dealer's customer applies to the Department for a sales and use tax refund, the net amount paid to the state is refunded. If the dealer or the dealer's customer makes application for a refund to the Department, only the net amount of the tax paid by the dealer is refunded.
In accordance with the Department's policy, the Taxpayer was instructed to seek from several of its vendors refunds of the sales taxes erroneously paid on purchases for resale that were included in the untaxed sales assessment. The Taxpayer followed the auditor's instructions and requested the sales tax refunds from the vendors. However, the Taxpayer was unable to obtain refunds of all the erroneously paid sales taxes.
In limited circumstances, the Department will agree to issue refunds of erroneously paid sales or use taxes. In P.D. 17-115 (6/29/17), the Tax Commissioner agreed to allow a credit in an audit for sales taxes paid to vendors on tangible personal property purchased for resale. The taxpayer in this case was required to provide documentation that the sales taxes were paid to the vendors.
In the instant case, the Taxpayer was unable to obtain refunds of some of the erroneously paid sales taxes identified in its audit. I will agree to issue the Taxpayer a refund based on certain requirements. The Taxpayer must furnish documentation that demonstrates the vendor(s) could not or would not refund the erroneous sales tax payments. The Taxpayer must provide information regarding the refunds that were received from the vendors identified in the audit. The refund amount issued to the Taxpayer will be based on and limited to the vendors and amounts included in the spreadsheet information that was verified by the auditor.
CONCLUSION
In accordance with this determination, the case will be referred to the appropriate field audit staff to review the documentation described above in order to verify and calculate the proper amount of the refund due the Taxpayer. The auditor will contact the Taxpayer to obtain the information requested for evaluation of the refund request. The Taxpayer should be prepared to provide the auditor with the necessary refund documentation.
The Code of Virginia sections, regulation and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions concerning this determination or regarding the documentation requested, please contact ***** at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/838.S