August 11, 2020
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 letter regarding the retail sales and use tax assessment issued to ***** (the “Taxpayer”) for the period of September 2006 through September 2009. I apologize for the delay in responding to your request.
FACTS
In Public Document (P.D.) 19-85 (8/12/2019) issued to the Taxpayer, the Department determined that a resale exemption certificate provided by a customer was not acceptable because it was in the name of a related taxpayer. In addition, the Department held that the Taxpayer’s documentation was insufficient to verify whether the correct amount of tax had been remitted.
The Taxpayer seeks a redetermination, contending that the Department should accept the exemption certificate based on prior documents in which the Department allowed exemption certificates with erroneous information. The Taxpayer also asserts that the sample used by the auditor to estimate its tax liability was not reflective of the actual sales made during the audit period.
DETERMINATION
***** (The “Customer”)
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 of the Virginia Administrative Code (VAC) 10-210-280 A states, in part:
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.
The Taxpayer sold network and telecommunications equipment to the Customer. The resale exemption certificate listed ***** (Company A) as the purchaser trading as ***** (Company B). The Taxpayer contends that Company B is the Customer.
The Taxpayer asserts that in P.D. 10-201 (8/31/2010), the Department ruled that incorrect exemption certificates are accepted even after a customer sent additional incorrect information after the fact to the dealer, provided a valid certificate is issued after the audit period. In P.D. 10-201, the legal entity name was listed as the purchaser, but the trading-as name was the customer’s name. The Department accepted the exemption certificate for the audit period because the Department was able to independently identify the customer as a manufacturer that was entitled to claim a manufacturer’s exemption.
When a dealer fails to receive a valid certificate at the time of sale, the “good faith acceptance” privilege is invalidated and the dealer becomes subject to the tax that was not applied to the transaction. While the dealer has the responsibility to prove the transaction is exempt, the Department also applies “greater scrutiny” to determine whether the transaction is exempt in order to avoid collecting tax when it is not due. In doing so, the Department may perform a search of its records to determine if the customer has a registration, as well as, a sales and use tax return filing history. Once this search is performed, the Department can reasonably conclude whether the purchase made by the customer would qualify for an exemption, in this case a resale exemption. The Department takes these additional steps because dealers do not have access to the registration and filing histories of their customers and, therefore, cannot reasonably be expected to provide such scrutiny regarding the acceptance of exemption certificates. See P.D. 97-95 (2/21/1997), 98-29 (2/20/1998), 04-75 (8/25/2004), 11-8 (1/20/2011) and 16-104 (5/25/2016).
In this instance, there is no evidence presented by the Taxpayer showing that Company B is in fact the Customer. In addition, the Department is unable to independently verify that Company B is the customer entitled to the resale exemption regarding the sales at issue.
The Taxpayer further asserts that it used reasonable care in accepting the exemption certificate although there is a slight variation between the customer on the purchase orders and certificate. I disagree. The slight variation referenced by the Taxpayer is an inconsistency sufficient to raise doubt that the entity stated on the face of the certificate is in fact the entity stated on the purchase orders supporting the sales.
Estimated Assessment
The Taxpayer contends that an estimated assessment should not be issued because it filed its returns in good faith, did not provide false or fraudulent documentation and allowed a full examination of its books and records. This issue was addressed in P.D. 19-85 under the “Estimated Assessment” section of the determination. As such, there is no need to readdress this issue in this redetermination.
Audit Sample
Title 23 VAC 10-20-165 F 1 d provides that a taxpayer may request a reconsideration if additional evidence or documentation relative to the original contested issue(s) is discovered. This section does not allow for the presentation of an issue that was not previously raised by a taxpayer's original appeal. See P.D. 17-106 (6/21/2017). The Taxpayer did not address the validity of the audit sample in its initial appeal. Accordingly, the Taxpayer’s argument that the audit sample was not representative of the audit period will not be addressed.
CONCLUSION
Virginia Code § 58.1-205 states that an assessment of tax by the Department is deemed to be prima facie correct. The burden of proving that a tax assessment is erroneous is on the Taxpayer. Based on the evidence and information provided, the Taxpayer has not met that burden. As such, the Taxpayer’s request for the abatement, or in the alternative the adjustment, of the sales tax assessment issued for the period of September 2006 through September 2009 is not granted. While I recognize a continued disagreement about the validity of this assessment, this letter constitutes the Department’s final determination regarding the exemption certificate issue.
The Taxpayer will receive an updated bill to include accrued interest to date. No further interest will accrue provided the outstanding assessment is paid within 60 days from the date of the bill. Please remit payment to Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact Ms. Patterson at *****.
The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/2189.B