Tax Type
Retail Sales and Use Tax
Description
Vendor/seller liability; Voluntarily registered dealer
Topic
Collection of Delinquent Tax
Date Issued
09-29-1995
September 29, 1995
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear****************:
This will reply to your letter in which you seek correction of sales and use tax assessed to your client,**********(the "Taxpayer"), for the period January, 1991 through December, 1993.
FACTS
The Taxpayer is a manufacturer located outside Virginia engaged in the production of lightning protection systems for sale to electrical subcontractors for installation in residential and commercial buildings. The Taxpayer owns no facilities in Virginia nor does it employ any salespersons who conduct business in Virginia on its behalf. The Taxpayer's products are generally shipped by common carrier to its Virginia customers.
The Taxpayer has been audited by the department because it voluntarily registered to collect and remit Virginia sales tax. In 1991 the Taxpayer was advised by its accountant that it was not required to collect the Virginia tax due to its failure to meet the criteria that determines nexus with the state. Based on this advice the Taxpayer discontinued its collection of the sales tax but failed to terminate its registration. Instead, the Taxpayer began filing zero returns for each filing period.
The auditor does not dispute the nexus issue but has assessed tax on the Taxpayer's Virginia sales because the Taxpayer did not terminate its registration and continued to file Virginia sales tax returns through the audit period. In support of the assessment, the auditor relies upon a previous department ruling, P.D. 93-141 (6/7/93). The auditor has terminated the Taxpayer's registration effective January 1, 1994.
The Taxpayer protests the tax and asserts that it has fully complied by not charging the tax and shifting the responsibility for payment of the tax to the purchaser since a contractor is required to pay the use tax on their purchases of property used and consumed in the performance of real property contracts in Virginia. The Taxpayer further contends that the penalty should not be applied to the audit assessment since the Taxpayer filed zero returns based on its belief that it was not required to collect the tax.
DETERMINATION
P.D. 93-141 discusses an out-of-state furniture dealer who voluntarily registered to collect Virginia sales tax and like the present Taxpayer filed zero returns when in fact it should have collected the tax on its Virginia sales. The department ruled that the taxpayer, by voluntarily registering, consented to the sales tax jurisdiction of the state and despite filing zero returns, the taxpayer was a dealer for purposes of the sales tax.
I must agree with the auditor's assessment of the tax based on the above ruling. At the point in which the Taxpayer voluntarily registered with the department, it was required to collect the tax on Virginia sales until such time as it provided written notification of termination of the registration. See Code of Virginia § 58.1-613, copy enclosed, which sets forth the filing requirements for dealers in Virginia.
The Taxpayer's contention that contractors are required to pay the use tax on purchases of property used in real property contracts is correct as provided in Code of Virginia § 58.1-610. Notwithstanding, such requirement does not relieve the Taxpayer or any other registered dealer of its responsibility to collect and remit the tax on Virginia transactions subject to the tax.
Based on the facts presented, the Taxpayer does not engage in sufficient activity in Virginia to meet the requirements for nexus. However, it is my understanding that the Taxpayer's parent company is engaged in certain activities in Virginia which create sufficient nexus and that the Taxpayer sells property to its parent for use in the performance of Virginia real property contracts. As a service to its parent and other customers who may purchase items for use in the performance of Virginia real property contracts, the Taxpayer may wish to reconsider its decision to discontinue collecting Virginia tax. Otherwise, its parent and other customers will be required to remit Virginia use tax.
Penalty has been applied to the audit assessment because the Taxpayer failed to meet the sales compliance ratio requirement for second generation audits. While the required ratio is 75%, the Taxpayer's ratio is only 58%. As such, the auditor was correct in applying the penalty. However, l will agree to waive the penalty in light of the nexus issue.
In accordance with the determination set forth, the Taxpayer will receive a revised "Notice of Assessment" to reflect the adjustment for penalty and will include interest accrued through the date of the letter of protest. The assessment should be paid within 30 days to avoid the accrual of additional interest charges.
If you have additional questions, please contact*****************at************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7966J
Rulings of the Tax Commissioner