May 9, 2019
Re: § 58.1-1821 Appeal: Retail Sales and Use Tax
Dear *****:
This is in response to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period March 2013 through February 2016. I note that the assessments are paid in full. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a distributor of truck and trailer parts located in Virginia. The Taxpayer sells heavy duty parts and related items in addition to remanufacturing products and components for customers. As a result of this Department’s audit, the Taxpayer was assessed retail sales tax on untaxed sales identified in a three-month sample where the auditor determined the resale exemption certificates on file were invalid.
The Taxpayer seeks the removal of these sales from the audit, maintaining the sales are exempt from the tax as the exemption certificates were accepted in good faith. The Taxpayer cites Virginia Code § 58.1-623 and Title 23 of the Virginia Administrative Code (VAC) 10-210-280 to support its position.
DETERMINATION
Virginia Code § 58.1-623(A) sets out that “All 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."
Title 23 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."
Title 23 VAC 10-210-280 B requires legitimate use of an exemption certificate and provides that:
"Reasonable care and judgment must be exercised by all concerned to prevent the giving or 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."
Public Document (P.D.) 11-8 (1/20/11) discusses the good faith requirement and its application to the acceptance of exemption certificates. As outlined in the P.D. 11-8 and Title 23 VAC 10-210-280 A, dealers cannot accept incomplete exemption certificates in good faith. In cases where a taxpayer accepts an exemption certificate that is incomplete, the claim for exemption is subject to greater scrutiny by the Department. Under these circumstances, the exemption certificate will only be accepted if the Department can confirm the customer’s use of the certificate was valid and proper for the specific sales transaction as reviewed in the audit.
P.D. 16-104, which was provided to the Taxpayer by the auditor, further explains that in circumstances such as the acceptance of an undated exemption certificate, the document fails to allow an auditor to determine whether 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.
During the course of the audit, several incomplete resale exemption certificates were identified. The public documents above explain the acceptability of exemption certificates can be called into question when an incomplete or invalid document is presented. Exemption certificates must include a date, valid registration, and the specific exemption being claimed by the purchaser. Thus, the incomplete exemption certificates in this case are not acceptable, as missing data provides no basis upon which to determine that the certificates were taken in good faith. In addition, a missing date demonstrates a lack of reasonable care and judgement, as outlined in Title 23 VAC 10-210-280 B, having been taken by all concerned parties.
Based on the foregoing, there is no basis to adjust the assessment. The Taxpayer has paid the assessment in full; therefore, no further action is required regarding the bills in question.
The Code of Virginia section, regulation, and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions 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,
Craig M. Burns
Tax Commissioner
AR/1369L