December 1, 2020
Re: § 58.1-1821: Retail Sales and Use Tax
This is in response to your letter in which you seek correction of the retail sales and use tax audit assessment issued to ***** (the "Taxpayer"), for the period of November 2015 through September 2019.
The Taxpayer operates a homeowners association with one location in Virginia. The Taxpayer’s primary business is operating a restaurant and banquet facility, as well as operating a gift shop, pool, and fitness facility. The audit revealed that the Taxpayer was not remitting all of the sales tax that it was collecting. In addition, the audit included exceptions for untaxed expense purchases and fixed asset purchases. The Taxpayer does not agree with the audit results. The Taxpayer was given ample time during the audit to provide documentation to show proper taxation and failed to do so.
In its letter, the Taxpayer claims that it submitted documentation during the audit that shows that the vendor over-collected tax on certain asset purchases (non-contested assets, Lines 6, 7, and 8) and remitted the tax on behalf of the Taxpayer. The fixed assets at issue were delivered by the vendor to the Taxpayer in Virginia. It is my understanding that the vendor charged an 8.3% sales tax on sales made to the Taxpayer and remitted such tax to Arizona. Virginia Code § 58.1-604 imposes the Virginia use tax, which applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased. Accordingly, the purchases of the fixed assets at issue were subject to the Virginia use tax.
Public Document (P.D.) 99-187 (7/15/1999) and P.D. 00-24 (3/28/2000) are relevant in this instance. In P.D. 99-187, the vendor sold and delivered materials to the taxpayer in Virginia and collected a 5% sales tax and remitted it to the vendor's state. The taxpayer contested the assessment of Virginia tax on the purchase and claimed that it met its obligations to pay the sales tax. The Tax Commissioner upheld the assessment and ruled that the taxpayer did not exercise reasonable care and judgment to ensure that it was properly paying a Virginia retail sales or use tax on the purchase. A similar situation was addressed in P.D. 00-24. In that case, the auditor included in the sample two purchases on which the taxpayer paid another state's sales tax in error. The taxpayer claimed that the purchases distorted the sample by assuming that other similar purchases were subjected to another state's tax. The Tax Commissioner upheld the assessment ruling that the removal of the transactions would nullify the purpose and validity of the sample. As I find the Taxpayer's current situation to be analogous to those prior decisions, I find no basis to remove the asset purchases or invalidate the auditor's sample calculations.
Under long settled principles of sales and use tax law, the Department may seek payment of the tax from either the seller or the purchaser of tangible personal property. The case of United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977) aff'd, 569 F.2d 811 (4th Cir. 1978) held that while "the seller is legally obligated to collect the tax from the purchaser, the statute [Virginia Code § 58.1-625] makes the tax the legal debt of the purchaser." Thus, the Taxpayer's obligation for payment of the tax does not cease when it pays the wrong state's sales tax to a vendor. In this case, the Taxpayer erroneously paid Arizona state sales tax on a purchase in which Virginia sales and use tax was due. Accordingly, the Taxpayer should remit the proper tax to the Department and apply to the vendor for a refund of the tax paid.
In addition, I will respond to the Taxpayer’s claim that it did not have a chance to review the calculation of the audit results prior to the issuance of the assessment. The audit comments indicate that the Taxpayer was in agreement with finalizing the audit. The Taxpayer’s representative notes that the audit was conducted in Virginia, while the accounting office is located in Arizona. The Taxpayer’s representative also indicates that the auditors primarily worked with an onsite manager during the audit and that the accounting office was surprised by the audit results. It is my understanding that the auditor communicated with all relevant parties and gave the Taxpayer ample time during the audit to respond to requests for information.
Based on this determination, the assessment is correct. An updated bill, with interest accrued to date will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 60 days of the date of the bill.
The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Craig M. Burns