Tax Type
Retail Sales and Use Tax
Description
Use tax; Purchases from an out-of-state vendor
Topic
Taxability of Persons and Transactions
Date Issued
10-14-1987
October 14, 1987
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ********************
This will reply to your letter of May 21, 1987 seeking correction of an assessment issued in the above referenced case for the audit period December, 1984 through January, 1986.
FACTS
In connection with its operation of several food and gas convenience stores, *********** (taxpayer), was audited by the department and held liable for the use tax on its purchases of tangible personal property from out-of-state vendors. The taxpayer contests the assessment stating that the tax may not be constitutionally applied to such transactions which involved interstate commerce. In support of this contention, the taxpayer cites the U.S. Supreme Court cases of MeLeod v. J. E. Dilworth, 322 U.S. 327 (1944), and American Oil Co. v. Neill, 380 U.S. 451 (1950).
In addition, the taxpayer contends that it paid sales tax to its vendors on most of the items held taxable in the audit, but that the vendors remitted such taxes to their home states rather than to Virginia, notwithstanding the fact that the taxpayer took delivery of the items in Virginia. Accordingly, the taxpayer seeks a credit for such taxes paid to the other states.
Lastly, the taxpayer contends that since its vendors failed to properly collect and remit Virginia sales tax at the time of its purchases, the department should look to the vendors for such taxes at this time.
Section 58.1-608(20) of the Virginia Code and Virginia Regulation 630-10-51 provide an exemption from the tax for sales of tangible personal property in interstate or foreign commerce. The Regulation states:
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- A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. (Emphasis added.)
- A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. (Emphasis added.)
The interstate commerce exemption cannot be used to exempt the transactions in this case, since delivery of the items purchased by the taxpayer occurred entirely within Virginia. The fact that common carriers were used to transport the items to the taxpayer's Virginia business locations does not serve to exempt such transactions. Instead, the use of such carriers further supports the conclusion that no use of the items occurred in the taxpayer's vendors home states which could have supported the application of such other states sales tax to such transactions.
In addition, Virginia Regulation 630-10-29 provides that "[a]ny person who purchases tangible personal property in another state and who has paid a sales or use tax to such state ... , is granted a credit against the use tax imposed by Virginia on its use within this state for the amount of tax paid in the state of purchase." However, this regulation goes on to provide that the "credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund." (Emphasis added)
Accordingly, the payment of the other state's sales tax was erroneous in this case since delivery of the tangible personal property purchased occurred in Virginia. However, the taxpayer may seek refunds from the states to which such tax was erroneously paid.
Furthermore, the U.S. Supreme Court cases cited do not support the taxpayer's position since they did not involve use tax assessments such as the one contested here. The McLeod case involved an attempt by the state of Arkansas to require the collection of its sales tax from an out-of-state seller with respect to transactions which occurred entirely outside the state of Arkansas. In denying Arkansas the right to impose its sales tax on such out of state transactions, the Supreme Court specifically noted that no attempt had been made by Arkansas to impose a use tax on goods purchased outside the state for use or consumption in Arkansas. The American Oil Company case involved an attempt by the state of Idaho to impose an excise or privilege tax on an Idaho licensed motor fuel dealer for a transaction which occurred entirely outside of Idaho, for subsequent importation by the purchaser into Idaho. Accordingly, neither of these cases call into question the validity of state use tax statutes as applied to users and consumers of tangible personal property within their boundaries.
Lastly, 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 makes the tax the legal debt of the purchaser." In addition, I cannot agree with the taxpayer's characterization that this language misinterpreted Virginia sales and use tax law, when it formed the basis for the entire opinion upholding the department's use tax assessment.
Furthermore, the Virginia Supreme Court, in the case of Commonwealth, Department of Taxation v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 413 (1980) upheld the application of Virginia's use tax to property purchased outside Virginia which would have been subject to the sales tax if it had been purchased within this State. The court explained that the "primary purpose of the use tax is to prevent the sales tax from placing Virginia retailers at a competitive disadvantage with retailers outside Virginia. Hence, the sales and use taxes combine to form a uniform levy."
Based on all of the foregoing, I find no basis for any correction of the assessment. However, the taxpayer will be given thirty days within which to submit information regarding the mathematical or clerical errors which it has located with regard to the assessments Such information should be sent to the department's Technical Services Section, Office Services Division, P.O. Box 6-L, Richmond, Virginia 23282. In the absence of such information, the entire amount of the assessment will be due and payable at the end of this thirty day period.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner