Tax Type
Retail Sales and Use Tax
Description
Agriculture; Show horses
Topic
Taxability of Persons and Transactions
Date Issued
03-18-1993
March 18, 1993
Re: §58.1-1821 Application: Sales and Use Tax
Dear**********
This will reply to your letter of September 24, 1991 in which you seek correction of a consumer use tax assessment to your clients, *************the Taxpayers, as a result of an audit for the period April 1988 through May 1991.
FACTS
The Taxpayers were audited and found to have failed to pay the tax on a show horse purchased from a resident of another state through a third party. At the time of purchase, the horse was located in another state for training and boarding and payment was made directly to the entity training and boarding the horse. You maintain that the purchasers were not liable for the use tax since the agricultural and occasional sale exemptions were applicable and the horse's seller was located in another state.
DETERMINATION
I will address each of your contentions individually below:
Agricultural Exemption
The sales and use tax agricultural exemption is set forth in Va. Code § 58.1-608(A)(2)(a) and interpreted in Virginia Regulation (VR) 630-10-4. This regulation clearly provides that the exemption applies only to property purchased for use in agricultural production for market. The agricultural exemption is inapplicable to purchases of horses for show as such horses are not for use in agricultural production for market. It provides further that in the case of farmer-horse breeders, "[h]orses purchased for racing or showing are subject to the tax since they are not used exclusively for breeding purposes."
Accordingly, the horse purchased by the Taxpayers did not qualify for the agricultural exemption.
Out-of-State Purchase
You maintain that since the Taxpayers purchased the horse out-of-state, no sales tax is due. You further maintain that the previous owner of the horse was under no obligation to collect any tax because she is not a resident of Virginia, does not do business in Virginia, etc.
Regardless of whether the seller of the horse was required to collect the tax, the transaction remained taxable. VR 630-10-109 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." In addition, the courts have held that the legal incidence of the sales and use tax is on the purchaser. Although a seller, who meets the definition of a dealer under Va. Code §58.1-612, is legally obligated to collect the tax from the purchaser, the statute makes the tax the legal debt of the purchaser. (See United States v. Forst, 442 F. Supp. 920 (W.D.Va. 1977), aff'd 569 F.2d 811 (4th Cir. 1978). Therefore, since no tax was collected on the sale of the horse, the Taxpayers were liable for remitting the tax directly to the department.
Occasional Sale
While Virginia law [Va. Code §58.1-608(A)(10)(b)] provides an exemption from the tax for occasional sales, the sale of the horse in the instant case did not qualify as such.
From the information provided, it appears that the horse was sold by its trainer, effectively an agent for the owner. The check written by the Taxpayers as payment for the horse was made out to the training/boarding facility. While you included a statement from the horse's previous owner that she received "full payment" for the horse, the training facility has reported receiving a commission for the sale of the horse.
In addition, while you point out that the title to the horse transferred directly from the owner to the Taxpayer, this has no bearing on the transaction as it is not customary for an owner to transfer title to a sales agent and then have the sales agent retransfer the title to the buyer. The sale was taxable as a sale by an auctioneer, agent or factor. The department has previously issued a ruling on the proper tax treatment of various scenarios involving the sale of horses, P.D. 92-101 (6/18/92), copy enclosed, and the Taxpayers' situation is very similar to Scenario B. Thus, the buyer (the Taxpayer) is responsible for remitting use tax on the purchase price of the horse.
Accordingly, the assessment is correct and is now due and payable. However, interest which has accrued since the date of your letter will be waived.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/5429H
Rulings of the Tax Commissioner