Tax Type
Retail Sales and Use Tax
Description
Fuel for off-road use; Valuation of aircraft; Statute of limitations
Topic
Taxability of Persons and Transactions
Date Issued
07-08-1996
July 8, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax and Aircraft Sales and Use Tax
Dear*************
This replies to your letter of August 18, 1995, in which you seek correction of a retail sales and use tax assessment issued to ******** (Taxpayer 1) for the period May 1990 through December 1993. You also seek correction of aircraft sales and use tax assessments issued to *******(Taxpayer 2), for the periods June 1991 through December 1993 and December 1992 through December 1993.
FACTS
Taxpayer 1 is a highway construction contractor and Taxpayer 2 is a holding company related to Taxpayer 1. Taxpayer 2 leases construction equipment to Taxpayer 1. An audit of Taxpayer 1 resulted in an assessment for use tax on various purchases of tangible personal property. Taxpayer 1 maintains that its purchases of fuel for off-road use is exempt from the tax because it was used in equipment that was leased from Taxpayer 2. You suggest that the lease charges for the equipment included the cost of the fuel; therefore, the purchases of fuel would qualify for the resale exemption.
Taxpayer 2 was audited and separate aircraft use tax assessments were made on its purchases of two airplanes. You maintain that the first assessment is invalid because it was not made within the three-year statute of limitations. You contest the second assessment because it was based on the high value of the airplane as listed in The NADA Retail Aircraft Appraisal Guide, rather than the book value of the aircraft. You suggest the department's valuation method overstates the amount of tax due.
DETERMINATION
Retail Sales and Use Tax
Based on the information contained in the audit report, the fuel purchases were invoiced to and paid by Taxpayer 1. The department's auditors verified that motor fuel taxes were not paid on the fuel purchases. Virginia Regulation (VR) 630-10-27(A) (copy enclosed) states "Any sale, distribution, or lease to or storage for such a contractor is deemed a sale, distribution, or lease to or storage for the ultimate consumer (the contractor), and not for resale by the contractor." Since Taxpayer 1 purchased the fuel for its own use and consumption, the tax would apply to such purchases in accordance with the regulation.
Code of Virginia § 58.1-205 (copy enclosed) provides that tax assessments issued by the department are deemed prima facie correct. The burden of proving that an assessment is erroneous is on the taxpayer. Taxpayer 1 has not provided evidence that the fuel purchases were resold or that it is entitled to a resale exemption by virtue of being a registered Virginia dealer. Also, no evidence has been provided that the cost of the fuel was included in the lease charges made to Taxpayer 1. The audit workpapers clearly show that Taxpayer 1 purchased the fuel. For these reasons, the assessment was properly made. For your reference, I have enclosed a copy of P.D. 93-233 (12/21/93), which addresses the tax treatment of fuel purchases by a lessor of construction equipment.
Aircraft Sales and Use Tax
Code of Virginia § 58.1-104 (copy enclosed) discusses the application of the statute of limitations to assessments issued by the department and states ".... any tax imposed by this subtitle shall be assessed within three years from the last day prescribed by law for the timely filing of the return." VR 630-11-1503(A)(1) (copy enclosed) requires that the buyer of an aircraft used in Virginia must present a copy of the purchase invoice with a return and payment of the two percent aircraft tax. In accordance with VR 630-11-1506 (copy enclosed), the tax must be paid before the owner applies to the Department of Aviation for a license to operate the aircraft.
It is clear in this case that Taxpayer 2 was required to file a return and pay the tax on its purchase of the airplane in June 1991. Since a return was not filed, an assessment for tax, penalty, and interest was made by the department on May 20, 1994, which is within the three-year statute of limitations. Accordingly, I find no basis for waiving the assessment.
Taxpayer 2 seeks correction of the second aircraft sales and use tax assessment on the basis that the department's computation of the tax was overstated. You maintain that the book value of the aircraft should be used to calculate the tax. Taxpayer 2 has remitted a tax payment of **** based on the book value of the airplane. The department's assessment was based on the high value of the aircraft as listed in the NADA Retail Aircraft Appraisal Guide because the sales invoice for the airplane stated that the price was $1.00 plus other valuable consideration. Taxpayer 2 was unable to provide documentation to support the actual price of the aircraft other than the book value computation noted above.
The basis for computing the aircraft sales and use tax is the sale price of the aircraft. Sale price includes any amount credited for a trade-in or similar transaction [see VR 630-11-1503(A)(2)]. The use of the book value of the aircraft to compute the tax is not appropriate based on this regulation and the definition of "Sale price" as found in Code of Virginia § 58.1-1501 (copy enclosed). VR 630-11-1503(C) states in part ".... where the Commissioner has reason to believe the invoice does not reflect the true sale price, .... the Commissioner may assess the tax. Under these circumstances, the tax may be assessed in accordance with such publications or other data as are customarily employed in ascertaining the maximum sale price of aircraft." (Emphasis added). The use of the high value for the aircraft, as found in the NADA Retail Aircraft Appraisal Guide, was appropriate and reasonable under the circumstances. If Taxpayer 2 can provide documentation of the actual purchase price of the aircraft, the assessment will be adjusted. Otherwise, I must consider the assessment valid.
I will allow you sixty days to furnish documentation relating to the sale price of the aircraft to the department's ******District Office by contacting******** at ********. You may remit payment totaling *****for the first aircraft assessment and the retail sales and use tax assessment issued to Taxpayer 1, to********in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218--1880. The payment amount includes accrued interest through August 18, 1995, the date of your appeal letter. If paid within sixty days, I will waive any additional interest. If you are unable to provide the requested documentation for the second aircraft assessment, the balance of ******** may be paid under the same terms as above. If you have any questions, please contact ***** at ******.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/8807S
Rulings of the Tax Commissioner