Tax Type
Retail Sales and Use Tax
Description
Dealers; Overcollection of Tax by Dealer
Topic
Taxpayers' Remedies
Date Issued
04-20-1992
April 20, 1992
Re: §58.1-1821: Retail Sales and Use Tax
Dear****************
This will reply to your letter of July 23, 1990 requesting a refund of sales and use taxes for ********(the "Taxpayer").
FACTS
The Taxpayer is a landscape contractor who bills all contracting work on a percentage basis. The price is allocated on a 40/60 split between taxable materials and nontaxable installation charges. At times a contract will require irrigation work which the Taxpayer subcontracts out and deducts from the total amount billed prior to calculating the 40/60 split. The sublet irrigation work is generally listed separately on the invoice and is nontaxable. However, as the result of a clerical error, nontaxable sublet irrigation work was not deducted correctly and inadvertently included in the percentage for taxable materials.
The Taxpayer contends that because of the billing error, the taxable measure amount was overstated and resulted in an overremittance of the sales tax. The Taxpayer maintains that they have not actually collected the tax from their customers and requests a refund of the tax overcollected. The Taxpayer proposes to revise its bills to customers showing the correct invoice breakdown and true amount of sales tax collected.
DETERMINATION
Va. Code §58.1-625 requires all dealers to separately state the sales tax to customers and to remit any tax erroneously or illegally collected to the department, unless or until the dealer can show that the tax has been refunded to the purchaser or credited to his account.
Virginia Regulation (VR) 630-10-89 explains the refunding of sales tax to dealers and provides that in order for a dealer to receive a refund of taxes erroneously collected, he must either 1) show that the tax erroneously collected was paid by him and not passed on to the customer or 2) show that the tax was collected from the customer as tax and subsequently refunded to the customer.
The Taxpayer has failed to meet the first test set forth above in that the original invoices given to the Taxpayer's customers show a specific amount of sales tax charged to and paid by its customers.
As provided in VR 630-10-40, a business, such as the Taxpayer, which supplies and installs plants, trees, etc., is deemed a retailer. Thus, it must collect and report the tax based on the sales price of such items to customers and should not pay the tax when purchasing such items. Because of the nature of the Taxpayer's business, the department has allowed the Taxpayer to remit the tax based on a 40/60 split between materials and labor. This agreement was made to simplify the administration of the tax for the Taxpayer. However, the Taxpayer is still a retailer with respect to the sale of plants, trees, etc. and the amount of the tax has been passed on to the customer as tax when so charged.
The Taxpayer proposes to revise its invoices to reflect the correct breakdown of the charges. Revising the invoices as the Taxpayer has suggested will not change the total amount billed to its customers, but it will reduce the amount of sales tax charged to its customers. However, the department cannot allow the Taxpayer to go back and make a bookkeeping change in order to reduce its tax liability since it has not demonstrated that this accounting adjustment results in a refund or credit to the account of its customers as stipulated in the second test above.
Thus, a refund of the tax will only be approved if the Taxpayer can show that the erroneously charged taxes have been refunded or credited to the accounts of its customers. I would also note that interest cannot be paid to the Taxpayer unless such interest will be passed on to its customers. Please forward the necessary information to the department's Office Services Division, Technical Services Section, P. O. Box 6-L, Richmond, Virginia 23282.
Sincerely.
W. H. Forst
Tax Commissioner
TPD/4570D
Rulings of the Tax Commissioner