Tax Type
Retail Sales and Use Tax
Description
Statute of Limitations; Failure to File
Topic
Collection of Delinquent Tax
Date Issued
05-01-1992
May 1, 1992
Re: Retail Sales & Use Tax
Dear**********
This will reply to your letter of September 9, 1991 in which you seek correction of sales and use tax assessed to your client, * * * (the Taxpayer) and its affiliates as the result of a department audit for the period May, 1985 through March, 1991.
FACTS
The Taxpayer is a nonprofit hospital and/or a nonprofit hospital corporation formed as part of a corporate reorganization of * * *. Prior to the reorganization in 1982, the hospital operated as a nonprofit hospital exempt from Virginia retail sales and use tax under Va. Code § 58.1-608(A)(7)(d). Subsequent to the reorganization the Taxpayer continued its operations subject to the application of the exemption, notwithstanding the fact that some of its affiliates are conducted for profit. However, some of the Taxpayer's affiliates, which have incurred no liability as a result of this audit, filed sales tax returns on their retail operations. The affiliates are separate entities in terms of corporate structure.
The department's auditors assessed tax for a six year period pursuant to Va. Code § 58.1-634, based on the assumption that the Taxpayer failed to file the proper returns subsequent to the reorganization. The Taxpayer contests the assessment of tax for the period May, 1985 through April, 1988 as invalid and requests that the Tax Commissioner exercise the discretionary power afforded under the aforementioned code section based on the Taxpayer's belief that the exemption from sales and use tax continued to apply in the context of a corporate reorganization of hospital functions.
DETERMINATION
In addressing the statute of limitations for assessing sales and use tax, Va. Code § 58.1-634 provides:
"[t]he Tax Commissioner shall not examine any person's records beyond the three-year period of limitations unless he has reasonable evidence of fraud, or reasonable cause to believe that such person was required by law to file a return and failed to do so.'
The Taxpayer's reorganization in 1982 produced separately affiliated entities to perform the various activities of the hospital. Moreover, the affiliates as separate entities are legally distinct from one another regarding their corporate identities. Therefore, the filing of sales tax returns by one or more affiliates of the Taxpayer has no bearing upon the requirement to file returns by another affiliate who may have thought itself tax exempt and not required to file. The issue of the department's exercise of discretion in assessing taxes past three years is discussed and set forth by the Attorney General as cited in your letter. (Va. Att'y Gen. Op. 601 (Jan. 11, 1983) and Op. 300 (Nov. 5, 1976)) However, the issue was addressed in light of the filing practices of a single company and not those of a parent and its affiliated subsidiaries.
As allowed under Va. Code § 58.1-634, the department's policy is to apply the six year statute of limitations when the department's records indicate that no returns have been filed by a specific corporate entity. Therefore, I find that the department's assessments are proper.
Given the substantial amounts of the assessments at issue, Va. Code § 58.1-105 authorizes the Tax Commissioner to accept offers in compromise of taxes of doubtful liability or doubtful collectibility. If you wish to pursue an offer, please provide information regarding the Taxpayer's financial condition to the department's Tax Policy Division at P.O. Box 6-L, Richmond, Virginia 23282.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner