93-78 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Tax not separately stated; Tax collected in error

Topic

Collection of Tax

Date Issued

03-22-1993

March 22, 1993

Re: §58.1-1821 Application: Sales and Use Tax

Dear**********

This will reply to your letter of August 14, 1992 and other correspondence in which you request a refund of sales and use taxes paid to the department by*********** (the Taxpayer) for the period May 1989 through June 1992.

FACTS

The Taxpayer is a Virginia manufacturer of children's swimming pools and artificial Christmas trees. While these items are sold to dealers for resale, the Taxpayer makes retail sales of replacement parts for its products directly to consumers both within and without Virginia.

During a recent audit it was determined that the Taxpayer was not separately stating the tax as required by Va. Code §58.1-625. Rather, the Taxpayer divided its gross sales price by 1.045 to determine the taxable sales price of the replacement part. The difference between these two amounts was remitted to the department as the sales tax. Furthermore, the Taxpayer used this same procedure on all its replacement part sales, including those made to customers outside Virginia.

Since its out-of-state sales are nontaxable sales in interstate commerce, the Taxpayer requests that the tax remitted on these sales be refunded. The Taxpayer contends that this tax was not collected from customers, but was taken from the Taxpayer's own pocket. The Taxpayer further contends that even though all of its sales were treated in the same manner as described above, the prices charged to out-of-state customers are higher than to Virginia customers since those out-of-state sales may incur higher costs for the Taxpayer.

DETERMINATION

Va. Code §58.1-625 specifically mandates that:

- Any dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously or illegally collected tax unless or until he can affirmatively show that the tax has since been refunded to the purchaser or credited to his account.

I cannot accept the Taxpayer's argument that only its Virginia sales, but not its out-of-state sales, included the tax. For the period under review the department accepted the Taxpayer's own accounting method but advised the Taxpayer to separately state the tax on a prospective basis. However, in accepting the Taxpayer's accounting method the department also accepted the Taxpayer's rationale that its gross sales figure included both the sales price of the replacement part and the tax. Therefore, it logically follows that when the Taxpayer received payment from its customers, such payment included both elements of the sale: sales price and sales tax. This conclusion is justified since the Taxpayer remitted the tax, as calculated, to the department on both its instate and out-of-state sales.

Furthermore, the Taxpayer may very well incur higher costs on its out-of-state sales, and thus set its prices accordingly. However, in the instant case the evidence shows that all sales were treated identically and, by your own methods, taxed identically.

Accordingly, I find that the Taxpayer erroneously collected the tax from its out-of-state customers. Therefore, in accordance with Va. Code §58.1-625 as noted above, the department must deny the Taxpayer's request for refund until it can be shown that the erroneously collected taxes have been refunded to those customers.

Sincerely,

W. H. Forst
Tax Commissioner

OTP/6396I

Rulings of the Tax Commissioner