Tax Type
Retail Sales and Use Tax
Description
Exemption certificates
Topic
Exemptions
Returns/Payments/Records
Taxability of Persons and Transactions
Date Issued
08-31-1989
August 31, 1989
Re: Ruling Request/ Sales and Use Tax
Dear***************
This will reply to your letter of June 7, 1989 to**********which has been referred to me for a response. We are treating your letter as a request for a ruling under Virginia Code §58.l-203.
FACTS
The following is a summary of the questions raised in your June 7, l 989 letter on the proper use of exemption certificates:
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- Is a purchase order and an exemption certificate required for a dealer to be relieved from the responsibility of collecting the tax?
Must a dealer receive a new exemption certificate each time a tax exempt purchase is made by an entity which already has an exemption certificate on file with the dealer?
Is a dealer liable for the tax if he makes a tax exempt sale to a person who states that the item purchased is intended for resale, but neither presents a resale exemption certificate at the time of purchase, nor has such a certificate on file with the dealer?
Can a dealer seek relief from a sales tax assessment in state courts without jeopardizing the continuation of his business?
Can the department assess a dealer on untaxed sales made to churches, schools, or other organizations for which the dealer has exemption certificates on file, but which do not meet the criteria for exemption?
If a particular sale is deemed to be taxable, can the department audit the purchaser rather than the dealer, and advise the dealer that any exemption certificate previously filed by the purchaser is invalid?
- Is a purchase order and an exemption certificate required for a dealer to be relieved from the responsibility of collecting the tax?
RULING
Some of these questions were answered in a January 3, 1986 determination of the department, a copy of which is enclosed. In this letter, the department agreed to adjust an audit involving sales made to the U.S. government, where the dealer could provide either sales tax exemption certificates (Form ST-12's), or where the dealer was able to establish the use of public funds, such as a U.S. government purchase order. In instances where the taxpayer was unable to provide either an ST- l 2 or documentation on the use of public funds, the sales were deemed taxable.
It is my understanding that in connection with a recently concluded audit of your business, it could not be determined whether certain persons were making purchases on their own behalf or on behalf of tax exempt entities. In instances where the auditor was provided with some evidence, such as a government purchase order or invoice issued to a government agency, the transaction was not taxed in the audit. However, when only a private individual's name appeared on an invoice with no further mention of a governmental entity or other tax exempt purchaser on the invoice, the auditor included the sale in the audit.
As stated in Virginia Retail Sales and Use Tax Regulation (VR) 630-10-20, included with your letter, exemption certificates are intended to relieve dealers from the burden of proving that a particular transaction qualifies for tax exemption under the law. In the absence of such a certificate, the burden remains on a dealer through some other means, such as through proof of the use of government funds, to establish that a transaction met all the necessary criteria for tax exemption.
Regarding the number of exemption certificates needed to be held by a dealer to support tax exempt sales, it is only necessary for a dealer to retain one certificate on file to support tax exempt sales made to the entity named in the certificate and covered by the exact wording of the certificate. However, a certificate of exemption maintained by a dealer is only useful when it can be matched with a sales invoice issued to a particular tax exempt entity. An invoice which refers only to the name of a private individual and makes no reference to the tax exempt entity for which an exemption is claimed, is of no use in substantiating the exemption.
Furthermore, a dealer may have difficulty proving that a particular sale qualified for exemption as a sale for resale based solely on its invoice to a particular customer, if it does not also have a copy of a resale certificate of exemption, (Form ST-10), on file from such customer at the time of sale.
Concerning the effect of appealing an assessment to court on the continuation of a business, the statutory requirements for appealing assessments are set forth in Virginia Code §58.1-1825, a copy of which is enclosed. The filing of such an appeal does not jeopardize the continuation of a business. However, as indicated in the statute, all assessments must be paid in full before the filing of an appeal to court.
Concerning the validity of tax exemption certificates received by a dealer, the enclosed letter indicates that a dealer need only exercise good faith in receiving such certificates from tax exempt customers. However, these exemption certificates do not relieve a dealer from responsibility for collecting and remitting the tax on transactions with private individuals, even when such individuals may be directly reimbursed by the organization for which the exemption certificate is on file.
Last, the department may look to either the seller or the purchaser for payment of the tax on any transaction which fails to qualify for tax exemption or for which the seller cannot produce an exemption certificate from the purchaser. Under Virginia Code §58.l-625, "[a]ny dealer who neglects...to collect [the] tax upon every taxable sale,... of tangible personal property made by him,...shall be liable for and pay the tax himself. " See, however, United States v. Forst, 442 F. Supp. 920, (W.D. Va. 1977), aff'd., 569 F. 2d 811, (4th Cir. 1978), which also holds the purchaser liable for such tax.
I hope that this and the enclosed materials have addressed your questions, but let me know if you have any further questions.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner