Rulings of the Tax Commissioner

May 9, 2019

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

Dear *****:

This will reply to your letter in which you request reconsideration of the Department’s prior determination regarding the retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period of June 1, 2010 through December 31, 2015. I apologize for the delay in responding to your request.

FACTS

The Taxpayer operates a horse boarding facility. The Department’s audit disclosed that the Taxpayer made purchases of grain, hay, various supplies and maintenance materials without payment of the sales tax to suppliers or accrual and remittance of the use tax to the Department. The Taxpayer appealed the assessments issued as a result of the audit. The Department issued a determination letter on April 3, 2017 upholding the assessments. 

The Taxpayer disagrees with the previous determination, contending horse boarding should be recognized as an agricultural business. The Taxpayer also disagrees with the expansion of the audit period to six years. The Taxpayer requests a waiver of the assessments. 

DETERMINATION

Agricultural Exemption

In response to the previous determination, the Taxpayer contends that it is not required to produce a product for market in order to be an agricultural business and, therefore, should be able to purchase agricultural supplies exempt of the tax. The Department does not seek to define agricultural production, as the Taxpayer implies, but rather to set out the parameters within which a taxpayer must operate in order to qualify for the exemption. Sales and use tax exemptions are strictly construed pursuant to the decision in Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 198 S.E.2d 619 (1973).  

In order to qualify for the agricultural exemption pursuant to Virginia Code § 58.1-609.2, a taxpayer must produce an agricultural product for market. Further, Title 23 of the Virginia Administrative Code (VAC) 10-210-790 explains that “operators of … stables…are required to pay the tax on purchases of tangible personal property used in their operations.” Title 23 VAC 10-210-50 A expressly states a Taxpayer “not engaged in the business of producing agricultural products for market cannot claim any agricultural exemptions.” Finally, with regard to horses specifically, Title 23 VAC 10-210-280 5 states that “feed for riding or pleasure horses … are not for use in agricultural production for market and are subject to the tax. No exemption certificate offered in making such a purchase is acceptable.”

Statute of Limitations

The Taxpayer argues the auditor wrongfully extended the audit period to six years, as the Taxpayer had no intent to commit fraud and there is no evidence of willfully evading taxes.

Pursuant to Virginia Code § 58.1-634, the Tax Commissioner may examine a person’s records beyond the three-year period of limitations when there is reasonable cause to believe the Taxpayer was “required by law to file a return and failed to do so.” While the Taxpayer contends it filed annual returns, the Taxpayer did not file monthly use tax returns when the use tax was due on purchases made exempt of the tax. Because the auditor found this tax liability in the original three-year audit, the audit period was extended an additional three years, to six years, pursuant to Virginia Code § 58.1-634. Further, the Taxpayer was provided information regarding the statute of limitations and the extension of the audit period at the beginning of the audit, as is procedure.  

Financial Hardship

The Taxpayer indicates that as a small business it is in need of help in addressing the assessment. The Taxpayer may wish to request an offer in compromise based on doubtful collectability.  The Taxpayer must present evidence of doubtful collectability to support a claim of financial hardship.

If the Taxpayer wishes to pursue a settlement based on doubtful collectability, please complete and return the enclosed Offer in Compromise Business Request for Settlement and Financial Information Statement For Businesses forms. These forms will allow the Department to review and analyze the Taxpayer's financial situation. Upon completion of the Department's review, a response will be issued based upon the information provided. The completed forms should be sent to: Tax Commissioner, Virginia Department of Taxation, Attn: CICT, P.O.  Box 2475, Richmond, Virginia 23218-2475. You may also fax the forms to (804) 786-2645. If the Department does not receive the completed forms within 30 days of the date of this letter, it will be presumed that the Taxpayer will not submit an offer in compromise based upon doubtful collectability. In such an instance, collection action on the remaining balance of the assessment will be initiated.

CONCLUSION

Based on this determination, I find no basis for waiving the assessment or reversing the previous determination.  This is the final time the Department will address the tax assessment for the audit period at issue.

The Code of Virginia and regulation sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website.  The Taxpayer has indicated that it does not have internet capabilities; therefore, copies of the cited authorities are enclosed.  If there are any questions regarding this matter, contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

Enclosures

AR/1375L