Tax Type
Retail Sales and Use Tax
Description
Purchases by property management agency
Topic
Property Subject to Tax
Date Issued
06-29-1994
June 29, 1994
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear**************
This will respond to your letter in which you seek correction of a sales and use tax assessment to your client,*************** (the "Taxpayer"), for the period August 1988 through July 1991.
FACTS
The Taxpayer is a real-estate organization engaged primarily in property management of both commercial and residential real estate. An audit of the Taxpayer produced an assessment for the failure to remit sales or use tax on tangible personal property purchased in connection with its property management activities.
The Taxpayer contests the assessment on the basis that the tangible personal property held taxable was actually acquired by various condominium and homeowner associations (the "Associations") which the Taxpayer represents as the managing agent. The Taxpayer maintains that it only paid the invoices for the property as the agent for the Associations and has no liability for the tax in question.
DETERMINATION
In Virginia, all sales of tangible personal property are taxable unless specifically exempt under Va. Code §§ 58.1-609.1 through 58.1-609.13. As neither the Taxpayer nor the Associations qualify for exemption from the tax, purchases by them, whether for their own use or on behalf of another taxable organization, are taxable. Accordingly, whether an agency relationship existed between the Taxpayer and the Associations had no bearing on the tax status of the transactions at issue - the tax was due and appropriately assessed on purchases made by the Taxpayer on behalf of the Associations.
For your information, I have enclosed a copy of United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir., 1978), which sets forth the factors necessary to establish an agency relationship for purposes of the Virginia retail sales and use tax. Based upon the guidelines set out by the court in Forst, the key factor in making the determination that an agency relationship exists in order to determine who is actually making the purchase, is whose credit is bound by the transaction. This requires an investigation beyond the language of the agency agreement to determine whether the course of business has been in accordance with the expressed terms of such agreement.
In the instant case, had the Associations been entitled to exemption from the tax on their purchases (i.e., as governmental entities), the purchases made by the Taxpayer on behalf of such Associations nonetheless would have been taxable as the department has determined that no agency relationship existed between the Taxpayer and the Associations. From the information provided, there was no indication that the Associations' credit was bound in the contested transactions. The purchases were made by the Taxpayer, in the name of the Taxpayer, and using funds from a disbursement account in the Taxpayer's name. No evidence was provided to indicate that the Associations were obligated in any way to the sellers for the purchases of the goods.
With respect to the penalty issue, this was the second audit of the Taxpayer and penalty was assessed due to a zero use tax compliance ratio. In the first audit, the Taxpayer was held taxable on its purchases in connection with property management arrangements. Since this was not a new issue for the Taxpayer, penalty was appropriately assessed.
Accordingly, the assessment is correct and the remaining audit balance of******should be paid within 30 days to avoid the accrual of additional interest and collection activities.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner