Tax Type
Retail Sales and Use Tax
Description
Exemption certificates
Topic
Exemptions
Date Issued
07-23-1993
July 23, 1993
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear***********
This will reply to your letter of November 20, 1992 in which you seek correction of a retail sales and use tax exemption for******** (the Taxpayer").
FACTS
As a result of an audit of the Taxpayer, an assessment was made for failure to collect sales tax on certain sales. You contend that the sales to one customer (the "Customer") were sales for resale and, therefore, should not be included in the assessment. In support of your position, you have submitted a Form ST-10 (resale exemption certificate) from the Customer and a draft marketing, sales and distribution agreement between the Taxpayer and the Customer.
DETERMINATION
Va. Code §58.1-603 imposes a tax upon every person who engages in the business of selling at retail or distributing tangible personal property in Virginia. Virginia Regulation (VR) 630-10-20 (copy enclosed) provides that all sales of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he receives, in good faith, a certificate of exemption from the purchaser indicating that the property is exempt under Virginia law.
In this case, the Taxpayer did not obtain an exemption certificate from the Customer at the time of the sales. In fact, the certificate was not obtained until after the audit commenced. It is the longstanding policy of the department that a certificate obtained after the fact, especially when under audit, is subject to closer scrutiny by the seller and is acceptable only if the sale truly qualified for the exemption. The certificate you received from the Customer is for an exemption for purchases for resale; however, it does not include a valid sales tax registration number. Because the exemption certificate obtained by the Taxpayer is not valid, the department cannot accept it.
The Taxpayer also failed to prove that the sales qualified for the resale exemption. The draft agreement by itself is not sufficient to establish that the actual purchases by the Customer were made with the intent of reselling at retail. There is no evidence that the draft agreement was ever finalized and executed into a working document. No evidence has been presented to demonstrate that the Customer resold the items in a retail manner, that the Customer charged tax to anyone, that the Customer considered itself a retailer, or that the Customer indicated to the Taxpayer that it would treat the products in a retail manner. The Customer's failure to obtain a retailer's registration is an indication that it did not intend to operate as a retailer and charge tax on its sales.
It appears that the Taxpayer failed to charge tax on its sales to the Customer because it assumed that the Customer was going to resell these items in a taxable retail manner, thus allowing the Customer to buy under the resale exemption. However, there is no evidence that the Customer actually did so. A dealer cannot escape liability for sales tax based on assumptions of what a customer will do with the item sold. Consequently, find no basis for adjusting the assessment.
Accordingly, the assessment is correct as made and is now due and payable. You will shortly receive an updated bill with interest accrued to date. The bill should be paid within 30 days to avoid the accrual of additional interest.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6717F
Rulings of the Tax Commissioner