Tax Type
Retail Sales and Use Tax
Description
Coal processing plant; Refuse haul roads
Topic
Exemptions
Date Issued
11-12-1992
November 12, 1992
Re: §58.1-1821 Application: Sales and Use Tax
Dear******************
This will reply to your letter of April 18, 1991 in which you seek relief of sales and use tax assessed to *********************(the Taxpayer) for the period of July, 1987 through June. 1990.
FACTS
The Taxpayer owns and operates a coal processing plant in Virginia. An integral part of the Taxpayer's process involves the removal and disposal of refuse that is a part of the mined coal in order to make the coal marketable. In order to dispose of the refuse, the Taxpayer constructed refuse hauling roads to their on-site dump facility. The Taxpayer was assessed tax on materials used in the construction of the haul roads and several pieces of pollution control equipment in use at the dump site. The Taxpayer is taking exception to the taxing of the pollution control equipment based on the recent certification by the State Water Pollution Control Board. The Taxpayer is also contesting the taxing of materials used in the construction of the refuse haul roads on the grounds that haul roads were deemed exempt in the case of Commonwealth v. Wellmore Coal, 228 Va. 149, 320 S.E.2d 509 (1984).
The Taxpayer is also taking exception to the sample method employed by the auditor in extrapolating the tax liability for the three year audit period. The Taxpayer feels the one year sample period used does not fairly represent the period under audit and the department lacks the statutory authority to use statistical sampling as a means of performing an audit.
Finally, the Taxpayer feels they have established good cause for failure to pay the tax assessed in the audit, and therefore request that penalty be waived as allowed under Virginia Regulation (VR) 630-10-80.
DETERMINATION
Pollution Control Equipment
VR 630-10-65.2(D) addresses the sales tax application of pollution control equipment as it pertains to the mining and mineral processing industry and states the following:
-
- Any property or facility which has been certified by the State Water Control Board or the State Air Pollution Control Board as used primarily for the purpose of preventing or abating air or water pollution is not subject to the tax. This is applicable to both real and tangible personal property. Only certified property or facilities qualify for exemption.
- Any property or facility which has been certified by the State Water Control Board or the State Air Pollution Control Board as used primarily for the purpose of preventing or abating air or water pollution is not subject to the tax. This is applicable to both real and tangible personal property. Only certified property or facilities qualify for exemption.
Based on comments from our audit staff, it is my understanding that some of the certified equipment in question may subsequently have been removed from the certified pollution control site or may no longer be used in pollution control activities. In either event, the equipment becomes subject to use tax at the point exempt usage ceases. The tax is computed based on the sales price of the equipment, or if more than six months after the date of purchase, the equipment's fair market value.
Refuse Haul Roads
The Virginia Supreme Court in Wellmore, copy enclosed, exempted coal haul roads used in the transportation of mined materials off of the mine site only when the materials are subject to "further mining processing." In this case, the haul roads in question are used to transport refuse to the Taxpayer's pollution control facility. While the Wellmore decision with regard to haul roads is applicable to the transportation of coal for further processing, it is not applicable to the transport of refuse to the Taxpayer's pollution control facility. As such, Wellmore has no application in this case and therefore, I find no basis for adjusting the audit with respect to "refuse" haul roads.
Sampling
Sampling is an audit technique of significant value that is widely used in the public and private sectors in all types of audits where a detailed audit would not prove beneficial to either the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit.
The courts have consistently held that a tax assessment issued by the proper authorities is prima facie correct and valid and that the burden of proof is upon the taxpayer to prove otherwise. As such, the taxpayer must demonstrate that the sample used is not representative of the audit period or that it is flawed in some other manner to invalidate the sample. In the case at hand, the Taxpayer has not presented any evidence to negate the validity of the sample used. The fact the auditor sampled one full year of the three year audit period, further supports the validity of the sample. Therefore, I find no basis for revising or extending the sample based on the information presented in the Taxpayer's letter.
Items Previously Taxed
It is also the Taxpayer's contention that some items included in the assessment have previously been taxed by the department. Upon verification of this fact, the audit will be adjusted to remove such items.
Penalty
VR 630-10-80(C)(1) provides for the mandatory application of audit penalty and states, in part, the following:
-
- The application of penalty to audit deficiencies is mandatory, but its application may be waived at the discretion of the Tax Commissioner based upon the extent of a dealer's compliance with requirements for collection and payment of sales tax and requirements for payment of use tax or good cause... On a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances.
- The application of penalty to audit deficiencies is mandatory, but its application may be waived at the discretion of the Tax Commissioner based upon the extent of a dealer's compliance with requirements for collection and payment of sales tax and requirements for payment of use tax or good cause... On a second or subsequent audit, a dealer is expected to demonstrate a higher degree of sales and use tax compliance. Penalty will not be waived on second or subsequent audits for other than exceptional mitigating circumstances.
Compliance on this audit, the second audit of the Taxpayer, was 4% on sales and 21% on purchases. Therefore, penalty was properly assessed. However, should the adjustments set forth above increase the compliance ratio to an acceptable level, penalty will be abated.
If you should have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
TPD/5171K
Rulings of the Tax Commissioner