Tax Type
Retail Sales and Use Tax
Description
Application of Sales and Use Taxes; Possession Taken in Virginia
Topic
Taxability of Persons and Transactions
Date Issued
10-21-1992
October 21, 1992
Re: §58.1-1821 Application: Use Tax
Dear****************
This will reply to your letter of January 20, 1992 in which you seek correction of a use tax assessment for ***************(the "Company" )
FACTS
The Company is a travel agency which conducts operations in 25 states, including Virginia. The company makes a substantial amount of its purchases from its corporate office located in Virginia. The department conducted an audit of the Company's operations and determined that the Company had failed to pay Virginia tax on purchases of fixed assets and other tangible personal property.
The Company now contests the assessment claiming that the department incorrectly assessed taxes on items which it has placed into service in other jurisdictions. Additionally, the Company asserts that the department's use of information from the Company's federal tax returns, for purposes of determining the fixed assets that are subject to taxation, was incorrect since the tax returns listed fixed assets that are placed in service in all of its locations and not just in Virginia.
DETERMINATION
Va. Code §58.1-603 imposes the sales tax on the retail sale of tangible personal property within the Commonwealth. Va. Code §58.1-602 defines the term "sale" to include any transfer of title or possession of tangible personal property.
Va Code §58.1-604 imposes the use tax on the use or consumption of tangible personal property in the Commonwealth. Va. Code §58.1-602 defines "use" as the exercise of any right or power over property which is incidental to the ownership of such property. Virginia Regulation (VR) 630-10-109(A) provides that "[t]he use tax 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."
To the extent that a purchase of tangible personal property is subject to the Virginia sales tax, it will not also be subject to the Virginia use tax. Va. Code §58.1-604. A taxpayer is entitled to claim a credit against the amount of use tax due to Virginia on its use of tangible personal property within the state for sales taxes paid to another state on the purchase of such property. Va. Code §58.1-611.
The Company purchases fixed assets and other tangible personal property from locations both within and without the Commonwealth. The purchases are generally delivered to the Company's Virginia office. The Company will then reship the items to one of its other locations outside of Virginia or use the items within Virginia.
For purposes of the Virginia Code, the term "use" is not solely limited to placing an item into service within Virginia. As set forth above, it encompasses any act of ownership, including the taking possession of an item within Virginia and the immediate delivery of such item to a location outside of Virginia. At the moment the Company takes possession of the property in Virginia it exercises an incidence of ownership over such property. This exercise of ownership rights results in the Company's purchase being subject to the Virginia use tax. Va. Code §§58.1-602 and 604, see also, P.D. 88-127 (June 7, 1988). Therefore, to the extent that the Company exercised ownership rights over the property while the items were physically located in Virginia, the assessment is correct.
The department used the fixed assets listed on its federal tax return, because the Company could not provide the department with a better of information concerning its fixed asset purchases. The assessment was based upon the best information available. The Company should note that the auditor examined all of the records available from the period 1987 through 1991. An examination of all the records is the most accurate method for determining the level of a taxpayer's compliance. Additionally, the auditor did exclude certain fixed assets from the audit which are ultimately being used in other locations, even though the Company could not provide verification that delivery did not occur in Virginia.
In the event that the Company can provide the department with sufficient documentation the following items will be removed from the audit:
-
- (i) Items upon which the Company paid Virginia sales tax;
(ii) Items where delivery was first taken in another state and upon which the Company paid sales tax to another state; and
(iii) Items purchased outside of Virginia and never delivered into Virginia.
- (i) Items upon which the Company paid Virginia sales tax;
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5933O
Rulings of the Tax Commissioner