Tax Type
Retail Sales and Use Tax
Description
Breeder and trainer of race horses
Topic
Exemptions
Property Subject to Tax
Date Issued
07-22-1991
July 22, 1991
Re: § 58.1-1821 Application: Sales and Use Tax
Dear******************
This will reply to your letter of May 24, 1990, as supplemented by information presented during our meeting of June 5, 1990, in which you further contest a sales and use tax assessment issued to your client, *************(Taxpayer), as a result of an audit by the department.
Facts
The Taxpayer, engaged as a breeder and trainer of race horses, was audited by the department and assessed sales and use tax for supplies used in the training and rehabilitation of race horses. The department issued a determination to the Taxpayer on July 29, 1988 (P.D. 88-231) in response to the Taxpayer's application for correction of the assessment.
The Taxpayer contests the conclusions of the July 29, 1988 determination and the accuracy of the audit revisions performed by the auditor, contending that: (1) Va. Code § 58.1-608(2)(a) serves to exempt all of the transactions held taxable in the audit; (2) Transactions included in the audit of the Taxpayer were also included in the audits of several of the Taxpayer's suppliers; (3) Certain allocation percentages determined by the auditor are inaccurate as the number of exempt horses was understated; (4) The purchase of breeding services and supplies and equipment used only in the breeding of race horses for market were held taxable in the audit; (5) Horses purchased by partnerships were taxed to the Taxpayer; and (6) Nontaxable veterinary charges were not removed from the audit.
Determination
I have reviewed my July 29, 1988 determination in light of the Taxpayer's most recent comments and do not find basis to revise my original determination with respect to the interpretation of Va. Code § 58.1-608(2)(a). As explained in the determination, the department has consistently held that the exemption as provided by the above statute and interpreted by Virginia Regulation (VR) 630-10-4 applies only to horses that are used exclusively in the breeding of horses for market or which are themselves bred and raised exclusively for market. As such, the exemption would not be available to the Taxpayer for the keeping or training of horses for others, the holding of horses for showing or pleasure riding, or for horses that are used both for breeding purposes and for racing or showing.
However, based upon the additional information presented by the Taxpayer, I would agree to have the department's district office further review and adjust the assessment in a manner consistent with my original determination. Any transactions found to have been included in the audits of the Taxpayer's suppliers will be removed from the Taxpayer's audit. The allocation percentages suggested in your letter and any supporting documentation will be further examined and the audit revised where appropriate. Any supplies and equipment shown utilized in connection with the exempt horses only will be removed from the audit. Items used in connection with the provision of boarding services will be subject to the tax, including those items used in the boarding for others of horses used by others for breeding. In addition, for purposes of revising the audit, a horse will be deemed "permanently retired from racing" when the racing career of the horse is permanently terminated and the horse permanently sent back to the farm to be used exclusively for the purpose of breeding horses for sale. As such, the exemption may apply to the feed and supplies for such horses prior to the time the horse is actually bred for the first time. The Taxpayer's records should clearly show when a particular horse has been permanently retired from racing for purposes of breeding.
Further, the transactions involving the purchase of the horses shown on page 42 of the audit report will be reviewed as you have indicated that the Taxpayer never owned one of the horses shown and have provided letters from various partners asserting that the other horses in question are owned by partnerships. Should the department's additional examination of any applicable partnership agreements and invoices also reflect that the horses were not purchased by the Taxpayer, the horses will be removed from the audit. The contested veterinary charges and the transaction on page 42 (line 23) of the audit which you identified as representing charges for breeding fees will also be removed.
Having reviewed the above issues with the Taxpayer, under the authority provided to the Tax Commissioner under Va. Code § 58.1-105 the department is willing to accept an offer to settle the Taxpayer's sales and use tax liability for the period of the audit through June 30, 1990, for transactions related to the Taxpayer's horse breeding and training operations.
I hope this will address your concerns. Please contact the department if you have additional questions or if we may be of any further assistance.
Sincerely,
W. H. Forst
Tax Commissioner
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Rulings of the Tax Commissioner