January 11, 2022
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessment issued for the period October 2013 through December 2016. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer, an automobile dealership and repair shop, made sales of tangible personal property without collecting and remitting Virginia retail sales and use tax. As a result of the Department’s audit, the Taxpayer was assessed sales tax on untaxed sales to customers where the auditor was not provided exemption certificates, or the exemption certificates that were provided were not valid. The Taxpayer filed an appeal including exemption certificates for these customers and requests the related transactions be removed from the audit.
DETERMINATION
Virginia Code § 58.1-623 A states 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 or 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 the Retail Sales and Use Tax Act in Title 58.1 of the Code of Virginia.
Virginia Code § 58.1-623 B states, in part:
Such certificate shall be signed by and bear the name and address of the taxpayer; shall indicate the number of the certificate of registration, if any, issued to the taxpayer; shall indicate the general character of the tangible personal property sold, distributed, leased, or stored, or to be sold, distributed, leased or stored under a blanket exemption certificate; and shall be substantially in such form as the Tax Commissioner may prescribe.
Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A states, in part, that:
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 “ [r]easonable care and judgement 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 items of tangible personal property not covered by the exact wording of the certificate”.
In Public Document (P.D.) 04-75 (8/25/2004), the Tax Commissioner cited longstanding policy as set out in P.D. 98-29 (2/20/1998) that the absence of a valid exemption certificate at the time of a sales transaction indicates that the certificate was never accepted in good faith. In such instances, the exemption certificates are subject to greater scrutiny by the Department and are acceptable only if the Department is able to confirm that a customer’s use of the certificate was valid and proper for a specific transaction identified during the audit.
Based on the foregoing authorities, I will address each of the sales referenced in the Taxpayers letter. Each customer listed below purchased various automobile parts from the Taxpayer.
***** (“Customer 1”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 1, with the resale exemption box checked. The certificate is undated. Customer 1 describes itself as engaged in auto repair. A certificate with a missing date provides no evidence of good faith acceptance and is subject to closer scrutiny.
According to the Department’s records, Customer 1 is engaged in automotive mechanical and electrical repair and is registered with the Department to collect Virginia sales tax. Customer 1 purchased tangible personal property from the Taxpayer that is consistent with the operation of an automotive mechanical and electrical repair business. Based on these facts, Customer 1 was eligible to claim the resale exemption and these transactions will be removed from the audit.
***** (“Customer 2”)
The Taxpayer has furnished two signed resale exemption certificate, Form ST-10, one which is undated, and the second dated August 21, 2017, from Customer 2. Both forms have the resale exemption box checked. Customer 2 describes itself as engaged in automotive repair. Neither exemption certificate is complete. One is missing a date, and thus provides no indication of when the certificate was submitted to the Taxpayer for determining whether it was taken prior to or at the time of sale. The second certificate is dated well after the sales transaction, and therefore cannot be deemed accepted in good faith for transactions occurring before its receipt. In such instances, an exemption claim is subject to closer scrutiny.
According to the Department’s records, Customer 2 is a general automotive repair business and is registered with the Department to collect Virginia sales tax. Customer 2 purchased tangible personal property from the Taxpayer that is consistent with that business operation. Based on Customer 2’s activities, it was eligible to claim the resale exemption and these transactions will be removed from the audit.
***** (“Customer 3”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 3, dated May 4, 1993. The purpose for making the exemption claim is not indicated, i.e., no boxes are checked. No description is furnished in the space provided for describing the kind of business engaged in by Customer 3. Because of the lack of required information, the certificate cannot be deemed accepted in good faith for transactions occurring before its receipt, and is subject to closer scrutiny.
According to the Department’s records, Customer 3 is a used car dealership. Further investigation indicates that Customer 3 is not registered with the Department to collect Virginia sales tax. Under these facts, this certificate is not acceptable for any purchases occurring during the audit period.
***** (“Customer 4”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 4, dated August 6, 2018, with the resale exemption box checked. Customer 4 describes itself as engaged in automotive sales and service. The certificate does not contain an address for the Taxpayer and is dated well after the sales transaction, and therefore cannot be deemed accepted in good faith for transactions occurring before its receipt, and is subject to closer scrutiny.
According to the Department’s records, Customer 4 is a used car dealership and is registered with the Department to collect Virginia sales tax. Customer 4 purchased tangible personal property from the Taxpayer that is consistent with that business operation. As a result, Customer 4 was eligible to claim the resale exemption and these transactions will be removed from the audit.
***** (“Customer 5”)
The Taxpayer has furnished a signed resale exemption certificate from Customer 5, with the tangible personal property for use or consumption by the United States box checked. The exemption certificate is not dated. At the heading on the face of this certificate appears the following statement: “for use by the Commonwealth of Virginia, a political subdivision of the Commonwealth of Virginia or the United States.” Customer 5 is not one of these government entities. The Department has determined that volunteer fire and rescue companies do not qualify for sales and use tax exemption as instrumentalities of local Virginia governments. See P.D. 20-57 (7/28/2020). Therefore, the contested sales as related to this customer will not be removed from the audit.
***** (“Customer 6”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 6, dated May 8, 2018, with the resale exemption box checked. Customer 6 describes itself as engaged in wholesale automobile auctions. The name listed for the dealer on the certificate is different from the name listed in the records of the Taxpayer. The certificate is also dated well after the sales transaction. Accordingly, the certificate is not valid on its face and thus requires closer scrutiny to determine its validity.
According to the Department’s records, Customer 6 is a wholesale trade agent and broker and is registered with the Department to collect Virginia sales tax. Customer 6 purchased tangible personal property from the Taxpayer that is consistent with the operation of a wholesale automobile auction business. Based on these activities, Customer 6 was eligible to claim the resale exemption and these transactions will be removed from the audit.
***** (“Customer 7”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 7, dated August 21, 2017, with the resale exemption box checked. Customer 7 describes itself as engaged in auto parts and repair. The certificate is dated well after the sales transactions, and therefore cannot be deemed accepted in good faith for transactions occurring before its receipt and requires closer scrutiny to determine its validity.
According to the Department’s records, Customer 7 is an automotive parts and accessories store and is registered with the Department to collect Virginia sales tax. Customer 7 purchased tangible personal property from the Taxpayer that is consistent with the operation of an automotive parts and accessories business. Consequently, Customer 7 was eligible to claim the resale exemption and these transactions will be removed from the audit.
***** (“Customer 8”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 8, dated March 31, 2010, with the resale exemption box checked. Customer 8 describes itself as engaged in auto body repair and refinishing. Based on an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, the contested sales as related to Customer 9 will be removed from the audit.
***** (“Customer 9”)
The Taxpayer has furnished a signed resale exemption certificate from Customer 9, dated January 2, 2018, with the tangible personal property for use or consumption by the United States box checked. The customer is a political subdivision that enjoys an exemption pursuant to Virginia Code § 58.1-609.1 4. As such, for the purpose of this audit only, the transaction at issue will be removed from the audit.
***** (“Customer 10”)
The Taxpayer has furnished a undated signed resale exemption certificate from Customer 10, with the tangible personal property for use or consumption by the Commonwealth of Virginia box checked. The customer is a political subdivision that enjoys an exemption pursuant to Virginia Code § 58.1-609.1 4. As such, for the purpose of this audit only, the transaction at issue will be removed from the audit.
***** (“Customer 11”)
The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 11, with the resale exemption box checked. The certificate is undated. Customer 11 describes itself as a car dealership. A certificate with a missing date provides no evidence of good faith acceptance and is subject to closer scrutiny.
According to the Department’s records, Customer 11 is an automobile dealership and is registered with the Department to collect Virginia sales tax. Customer 11 purchased tangible personal property from the Taxpayer that is consistent with the operation of a automobile dealership. Thus, Customer 11 was eligible to claim the resale exemption and these transactions will be removed from the audit.
Out-of-State Exemption Certificates
The Taxpayer contends that all sales made through an online marketplace through which dealerships sell and purchase inventory from other dealerships, were made for resale and are, accordingly, exempt from the tax. The online marketplace facilitates the sale of excess inventory between dealerships across the country, but does not maintain that all purchases must be for resale. Therefore, the transactions and related exemption certificates must be evaluated individually to determine whether they should be removed from the audit.
Virginia Code § 58.1-623 sets out the minimum criteria needed for a valid exemption certificate. These criteria include a requirement that an exemption certificate “shall be substantially in such form as the Tax Commissioner may prescribe.” Accordingly, the Department has prescribed Form ST-10 as the certificate of exemption for dealers to use when making purchases of tangible personal property for resale purposes only. In P.D. 91-105 (6/28/1991), the Department allowed the resale exemption for an out-of-state dealer, who was not registered with Virginia, provided it used the Department’s Form ST-10 and appropriately referenced the out-of-state registration number on the ST-10.
Notwithstanding the foregoing, the Department will also accept resale exemption certificates issued by state tax government agencies of other states, provided all of the criteria set out by Virginia Code § 58.1-623 and all of the areas of information vital to the proper giving and receiving of the certificate are met as contained on the Department’s Form ST-10. A resale exemption certificate must contain the following minimum information:
- The legal and trade name and physical address of the purchaser;
- The type of business engaged in by the purchaser;
- The certificate of registration number of the purchaser used by the Virginia Department of Taxation or the registration or account number issued by the purchaser’s state tax agency if the purchaser is not registered to collect Virginia sales and use tax;
- The date on which the certificate is signed by the purchaser;
- The name and physical address of the supplier;A statement that “all tangible personal property purchased from the named supplier on and after this date will be purchased for resale purposes only, unless otherwise specified on each order, and that this certificate shall remain in effect until revoked in writing by the Virginia Department of Taxation;
- The signature and title of the person authorized to sign the certificate;
- A statement that “the person signing the certificate is an authorized officer of the corporation if the dealer is a corporation, an authorized partner if the dealer is an unincorporated association, or the owner or authorized member if a sole proprietorship;
- A statement certifying that the person signing the certificate is “authorized to sign the certificate of exemption and that, to the best of my knowledge and belief, it is true and correct and made in good faith pursuant to the retail sales and use tax laws of Virginia; and
- A statement that the supplier is required to keep and maintain one copy of this resale exemption certificate.
In limited instances, the Department will accept resale exemption certificates or resale affidavits designed by taxpayers, provided all of the criteria set out above are included on the document and the document has been approved by the Department prior to its use for Virginia retail sales and use tax purposes. Accordingly, unless the Taxpayer knows that the Virginia Department of Taxation has previously approved the nonresident resale exemption certificate for use in connection with purchases from Virginia vendors, it should not be used. See P.D. 97-95 (2/21/1997).
The Taxpayer has provided two forms of documentations in support of its claimed exemptions: W-9s for purchasers, and exemption certificates for customers located in ten states. The Form W-9’s are requests for taxpayer identification number and certifications and do not contain the information required by Virginia Code § 58.1-623. The information contained on the provided out-of-state exemption certificates does not meet the requirements of Virginia Code § 58.1-623. In addition, the Taxpayer has provided no documentation that the Department approved the use of the nonresident resale exemption certificates prior to its use. Accordingly, there is no basis to remove these sales from the audit.
The assessment will be revised in accordance with this determination. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 60 days of the date of the bill.
The Code of Virginia sections, regulations, 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1795.A