Rulings of the Tax Commissioner

September 29, 2020

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

Dear *****:

This will respond to your letter submitted on behalf of ***** (the “Taxpayer”), in which you request credit for Virginia sales and use taxes that were paid to vendors and remitted to the Department. This request is a result of an audit for the period October 2012 through September 2018. I apologize for the delay in responding to your request.

FACTS

The Taxpayer operates a full-service heavy truck and equipment repair garage. The Taxpayer was not registered for the Virginia sales and use tax prior to the Department conducting an audit. Rather, the Taxpayer operated as a using and consuming contractor during the audit period. As a result, the Taxpayer paid vendors the sales tax on the purchases of items that were subsequently assessed as retail sales transactions in the audit. 

The auditor advised the Taxpayer to request refunds from the vendors to whom the sales taxes were paid in error. The auditor provided the Taxpayer with refund authorization letters to facilitate the refund requests. At the conclusion of the Department’s audit, the Taxpayer was issued an assessment for the period October 2012 through September 2018. The Taxpayer paid the assessment and appealed, requesting a refund for the Virginia sales and use taxes that were paid directly to the Taxpayer’s vendors but were not refunded.

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 under this chapter…” [Emphasis added].

The Department’s policy with respect to refunds of sales taxes erroneously paid to vendors is addressed in Public Document (P.D.) 96-358 (12/6/1996). 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, 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 refunds from its vendors 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 (6/29/2017) and P.D. 18-10 (2/2/2018), 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 Taxpayers in these cases were 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 that are 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 to the Taxpayer. The auditor will contact the Taxpayer to obtain any information needed to evaluate 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 are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about this response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/2002C