August 2, 2019
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This replies to your letter in which you seek correction of the retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period October 2011 through September 2014. I note that the assessments have been paid. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates an automotive dealership and is one of two affiliated entities operating as subsidiaries under a parent company. As a result of the Department's audit, the Taxpayer was held liable for the use tax on computer equipment purchased and leased from its affiliate. The Taxpayer contests the tax assessments and contends that it and its affiliate are two locations operating under the same legal entity with a single Federal Employer Identification Number (FEIN). Based on this organizational structure, the Taxpayer believes that the purchase and lease of the computer equipment are internal intercompany transactions between affiliated entities and are not subject to the sales or use tax. In addition, the Taxpayer claims that its affiliate properly paid the sales tax to its vendor on the purchase of the contested computer equipment.
DETERMINATION
Intercompany Transfers
Virginia Code § 58.1-603 imposes the sales tax on every person who sells or leases or rents tangible personal property in the Commonwealth. Virginia Code § 58.1-602 defines the term "sale" to mean "any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever, of tangible personal property . . . ." This same section also provides that the term "lease or rental" "means the leasing or renting of tangible personal property and the possession or use thereof by the lessee or renter for a consideration, without transfer of the title to such property."
According to the Department’s records, the Taxpayer has reported under its own separate FEIN since it registered with the Department in 1987. The Tax Commissioner has previously ruled that affiliated corporations must be treated as separate entities and leases of tangible personal property between them are not exempt intracompany transfers. See Public Documents (P.D.) 16-84 (5/17/16), 10-124 (7/7/10) and 94-271 (8/30/94). These public documents state that virtually any transaction involving a consideration, including rentals between two affiliated companies, is subject to the sales and use tax.
It is my understanding that invoices provided to the auditor indicated tax paid by the affiliate regarding purchases made for other car dealerships associated with related entities in the organizational structure. Therefore, this documentation has no bearing on the tax assessments at issue. The auditor requested from the Taxpayer, but was not provided, documentation that would support the position that the Taxpayer and its affiliate operate using the same FEIN. Based on the cited statutes and public documents, the Taxpayer is considered a separate entity for sales and use tax purposes, and is subject to the sales and use tax on transactions involving a consideration between the Taxpayer and its affiliate.
Purchases and Leases
In this instance, the affiliate sold and leased computer equipment to the Taxpayer. The affiliate applied a markup to the computer equipment and billed the Taxpayer for the total price and did not charge the sales tax.
Based on the cited authorities, the transactions involving the purchase and lease of the computer equipment for a consideration between the Taxpayer and its affiliate constitute a “sale” and are subject to the tax assessed in the audit. While Virginia Code § 58.1-612 legally requires dealers to collect and remit the sales tax on all sales or leases of tangible personal property, Virginia Code § 58.1-625 makes the tax the legal debt of the purchaser. Because the affiliate failed to collect and remit the sales tax from the Taxpayer on the sale and lease of the computer equipment, the Taxpayer is liable for the use tax on the total price of each transaction.
CONCLUSION
Virginia Code § 58.1-205 provides that a tax assessment issued by the Department is deemed prima facie correct. The burden is upon the taxpayer to prove otherwise. Lacking supporting documentation that the transactions between the Taxpayer and its affiliate represent exempt intracompany transfers, the Taxpayer has not met the burden of proof that the assessments are erroneous. Accordingly, I find that the audit assessments are correct and the Taxpayer is not due a refund from the Department.
The Code of Virginia sections and public documents 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 determination, please contact ***** of the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/634.T