Tax Type
Retail Sales and Use Tax
Description
Exemption Certificates; Resale certificates
Topic
Exemptions
Date Issued
09-16-1996
September 16, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
In your letter to the department, you requested correction of the retail sales and use tax assessment issued to ********** (the Taxpayer).
FACTS
The Taxpayer is a manufacturer of copiers, printers and other products. An audit for the period July 1991 through June 1994 resulted in a tax assessment for failing to prove that the sales or use tax had been paid on certain tangible personal property used in Virginia and that certain untaxed sales were exempt of the tax pursuant to a valid certificate of exemption.
The Taxpayer maintains that the sales tax assessed on taxable sales is erroneous based on exemption certificates which are available to the auditor to review. The Taxpayer also maintains that the use tax assessed on assets is erroneous since such assets are held as inventory for sale.
The Taxpayer also seeks waiver of the penalty and interest assessed in this case.
DETERMINATION
Retail Sales
As a dealer registered to charge and collect the Virginia sales and use tax, the Taxpayer should be aware of Virginia Regulation (VR) 630-10-20 which provides, in part, that:
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- All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer or lessee, unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law.
When receiving exemption certificates from Virginia customers, the Taxpayer is further required by VR 630-10-30 to "keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability. Such records must include...[a] record of all deductions and exemptions claimed in filing sales or use tax returns, including exemption and resale certificates...."
In the absence of such proof, we have no choice but to presume that the tax assessed on the retail sales in this case is proper. Although the Taxpayer has indicated that "exemption certificates are available for sales which the auditor has classified as taxable," it is my understanding that the auditor has sent letters on several occasions to either request this supporting documentation or to arrange a meeting to review such information but you have not responded. Unless the requested information is furnished to the department, I do not have any basis to adjust this portion of the assessment.
Fixed Assets
In addition to the dealer record requirements cited above, VR 630-10-30 sets out that a dealer's records must include "[a] record of the amount of all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase." This regulation further states that a dealer must maintain "[a] record of all tangible personal property used or consumed in the conduct of the business."
Although you claim that the assets assessed in this case "are held as inventory for sale," you have not established that such property was used for exempt purposes. For example, Code of Virginia § 58.1-623(C) provides, in part, that:
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- If a taxpayer who gives a certificate...makes any use of the property other than an exempt use or retention, demonstration, or display while holding property for resale, distribution, or lease in the regular course of business, such use shall be deemed a taxable sale by the taxpayer as of the time the property or service is first used by him, and the cost of the property to him shall be deemed the sales price of such retail sale.
If, indeed, the items picked up by the auditor are booked as assets by the Taxpayer, such accounting would be evidence that the Taxpayer used the property in a taxable manner. Furthermore, absent evidence that the Taxpayer paid the Virginia sales or use tax on such purchases or that such items were not used as assets by theTaxpayer but only held for sale or resale purposes, we have no choice but to presume that the use tax assessed on these purchases is proper.
Penalty
The application of penalty to audit deficiencies is mandatory and its application is generally based on the percentage of compliance determined by computing the dealer's compliance ratio. For second audits, penalty will generally apply unless the compliance ratios meet or exceed 85% for sales tax and 60% for use tax. As the Taxpayer's compliance ratios are 64% for sales tax and 31% for use tax, penalty applies.
Penalty may also be waived based on evidence of exceptional mitigating circumstances. The Taxpayer has not presented any evidence of exceptional mitigating circumstances as to justify waiver of the assessed penalties.
Interest
The application of interest to all past-due tax deficiencies is mandatory and accrues as set forth in Code of Virginia § 58.1-635(C) and at the rate set out in Code of Virginia § 58.1-15. Interest cannot be waived.
Based on all of the foregoing, the assessment in this case remains valid. The auditor will be contacting you within the next 15 days to schedule a time to review the requested information. If a revision is justified, the adjustments will be made to the audit, including recomputing the compliance ratios to determine whether the penalties can be waived. If the auditor is not given the opportunity to complete his review of the requested information within the next 60 days, an updated bill with interest accrued to present will be mailed to the Taxpayer; and if not paid within 30 days of such mailing, collection actions will proceed against the Taxpayer.
If you have any questions about the requested information, please contact our***********interstate audit supervisor, *********** at ************** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10974R
Rulings of the Tax Commissioner