Tax Type
Retail Sales and Use Tax
Description
Exemption certificates; Burden of proof
Topic
Exemptions
Date Issued
05-25-1994
May 25, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear****
This will reply to your letter of August 29, 1993 in which you seek correction of a retail sales and use tax assessment 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. The Taxpayer contends that the sales to one customer (the "Customer") were sales for resale and, therefore, should not be included in the assessment. In support of this position, the Taxpayer previously submitted a Form ST-10 (resale exemption certificate) obtained from the Customer after the audit commenced and a draft marketing, sales and distribution agreement between the Taxpayer and the Customer.
In a previous ruling, it was determined that the resale exemption certificate was not valid and that the Taxpayer failed to prove that the sales qualified for the resale exemption, as no evidence was presented to indicate that the Customer was a retailer or resold the items in a retail manner. See P.D. 93-161 (7/23/93).
You request reconsideration of the prior ruling, asserting that the Customer has always been in the resale business, with its primary accounts being with the federal government.
DETERMINATION
After reviewing the audit report and the information provided, I find no reason to change the department's position. As outlined in the department's previous response, the application of the law and regulations to the Taxpayer's situation is clear.
Va. Code §58.1-603 imposes the sales tax upon every person who engages in the business of selling at retail; sales for resale are not taxable. However, Va. Code §58.1-623 specifically provides:
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- All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt...
In this case, the Taxpayer's sales to the Customer were properly included in the department's audit as the Taxpayer did not have a resale exemption certificate on file from the Customer at the time the sales occurred. Furthermore, the Customer was not registered with the department to collect the sales tax and, therefore, any certificates of exemption provided to the Taxpayer would not have been valid without a registration.
The fact that the Customer's primary accounts are with the federal government is not dispositive of the issue. In a situation involving a contract for services with the federal government, the contractor is deemed the taxable user or consumer of all tangible personal property used in performing its services and is not entitled to purchase items under a resale exemption certificate. In such a case, the purchases are taxable.
The documentation submitted during the audit and during various stages of review (two rounds of review in the department's Audit Review Unit and a formal appeal) does not conclusively show that the sales to the Customer qualified for the resale exemption. The burden of proving that the assessment is erroneous, as required under Va. Code §58.1-1821, has not been met. Therefore, no basis exists for revising the audit assessment.
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,
Danny M. Payne
Acting Tax Commissioner
OTP/7333F
Rulings of the Tax Commissioner