Tax Type
Retail Sales and Use Tax
Description
Services; Repair and installation; Electrical equipment
Topic
Taxability of Persons and Transactions
Date Issued
10-24-1994
October 24, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will respond to correspondence from********seeking a correction of retail sales and use tax assessments for****************(the "Taxpayer").
FACTS
The Taxpayer primarily provides repair service for motors, generators, transformers, and other electrical equipment. The Taxpayer was audited for the period September, 1988 through July, 1991 for its two Virginia locations in *****and*******. The Taxpayer contests the tax assessed on its "unapplied materials" account. The Taxpayer contends the unapplied materials consist of parts it purchases for the purpose of consuming in its customers' jobs. The Taxpayer further contends it is complying with the tax regulations by charging its customers sales tax on these parts, when necessary. In those instances where tax is not charged, either by reason of resale, processing, etc., it has an exemption certificate releasing it from the liability of sales tax collection. It further contends that a more thorough review of its invoices is needed to determine the circumstances relating to the application of the tax.
DETERMINATION
Virginia Regulation (VR) 630-10-90 provides that persons engaged in repairing tangible personal property are required to collect the tax on separately stated, itemized or segregated charges for parts, materials and supplies sold; separately stated repair labor is not subject to the tax. The tax must be paid by the repairman on any equipment, tools and other tangible personal property used in performing the repair work.
A review of invoices for the sample months used in the audits (November 1990 and May 1990) indicated that incidental items were listed on certain sales invoices to customers, but there was no separate charge made and no tax charged. Additionally, the auditor noted that the purchase invoices in the unapplied materials account showed that the tax was not charged by the vendors nor was tax accrued by the Taxpayer.
While the Taxpayer maintains that it is not possible to determine what unapplied materials were used in jobs in which sales tax was not charged based upon the sample used, it has not provided any documentation to support its claim. Sampling is an audit technique of significant value that is widely used in both the public and private sectors for all types of audits where a detailed audit would not prove beneficial either to the auditor or the client. When sampling techniques are understood and properly applied, the final result should be within a narrow percentage range of the actual amount that would be determined by a detailed audit. In this instance, the audit techniques were properly applied and the sample used does provide a representative review of invoices for the audit period. Furthermore, while the Taxpayer claims it is charging sales tax on these parts or that they are exempt purchases, it has not submitted any invoices or other documents to substantiate this claim.
Under current policy, the tax applies to the purchase of consumable items such as the unapplied materials at issue. Therefore, the Taxpayer is liable for the use tax on all of its purchases of materials and supplies used or consumed in performing repair work.
Accordingly, the assessments are correct. Because of the delay in responding to the Taxpayer's appeal, additional accrued interest since the audit assessment will be waived. The current balance is************** If you have any questions regarding this determination, you may contact***************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/5865B
Rulings of the Tax Commissioner