Tax Type
Retail Sales and Use Tax
Description
Application of sales and use tax; Products delivered outside state
Topic
Taxability of Persons and Transactions
Date Issued
09-30-1996
September 30, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear
This will reply to your letter in which you seek a correction of the department's assessment issued to ************* (the Taxpayer) for the period March 1989 through November 1994. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates as a motor vehicle carrier of property. As a result of the department's audit, an assessment was made for untaxed purchases of fixed assets and recurring purchases. The Taxpayer contests the application of the tax to certain purchases and maintains that these items are used and consumed directly in the rendition of its public service as a common carrier. In addition, the Taxpayer takes exception to the tax on tangible personal property purchased for use outside Virginia.
DETERMINATION
Common Carrier Exemption
Code of Virginia § 58.1-609.33(3) provides an exemption from the sales and use tax for "tangible personal property sold or leased to a public service corporation engaged in business as a common carrier of property or passengers by motor vehicle or railways, for use or consumption by such common carrier directly in the rendition of its public service." Virginia Regulation (VR) 630-10-24.3 further interprets the statute and stipulates that a common carrier must be authorized to operate under a certificate of convenience and necessity issued by the State Corporation Commission in order to qualify for the exemption. This regulation only applies to common carriers of property by motor vehicle, including restricted common carriers, and has no application to contract or other carriers.
In instances where property is used to both provide exempt common carriage and taxable carriage outside of the carrier's common carrier authority, VR 630-10-24.3(C) indicates that the tax due may be prorated. This proration is based on the percentage of time the property is used in a taxable activity and the percentage of time the property is used in an exempt activity. The department has previously determined that the percentage of time may be calculated by using revenue derived or miles traveled in exempt common carriage versus taxable operations during the audit period. Several prior determinations which clearly set forth this policy are enclosed.
The Taxpayer provided a certificate of convenience and necessity issued by the Interstate Commerce Commission that designated the Taxpayer as a common carrier. Notwithstanding, the department does not rule out that, to some extent, the Taxpayer may be engaged in contract carrier activity. I understand that the records necessary to distinguish taxable from exempt activities in this case were not made available at the time of the audit. Accordingly, the assessment was made based on the best available information pursuant to Code of Virginia § 58.1-618. Estimated assessments made available under this statute are deemed to be prima facie correct. Nevertheless, I will allow the Taxpayer an opportunity to provide additional books and records which will enable the auditor to make an assessment in accordance with the information noted above. Once these records are made available. the assessment can be revised accordingly.
Purchases
I understand that the Taxpayer purchased a refrigerator, took possession of the property in Virginia, then shipped the property to an affiliate corporation in Germany. You indicate that this property was purchased for use in another country.
Code of Virginia § 58.1-602 defines the term "sale" to mean "any transfer of title of possession, or both,... of tangible personal property...." That same statute indicates that storage of tangible property in Virginia - to which the use tax applies - means "any keeping or retention of tangible personal property for use, consumption or distribution in this Commonwealth, or for any purpose other than sale at retail in the normal course of business." (Emphasis added).
Further, the Virginia Supreme Court decision in Commonwealth v. Pounding Mill Quarry, 215 Va. 647 (1975) established the principle that if a taxable event occurs in Virginia, subsequent delivery of the property outside of Virginia does not exempt the property from the tax. The court held that since both sales and delivery (possession) occurred in Virginia, the sales tax was properly imposed even though the purchaser intended to immediately transport the property to another state and use it there. I am concerned that the Taxpayer's purchase in the instant case is analogous to the situation in Pounding Mill in that the Taxpayer took title and possession of the property in Virginia. Based on the limited information currently before me, it therefore appears that the transaction was correctly assessed as first use of that property occurred in Virginia.
Summary
The auditor will contact the Taxpayer to schedule a suitable time to examine all the necessary records and documents pertaining to the common carrier issue raised in your protest. This information should be made available to the auditor within 60 days of the date of this letter. Upon review and possible revision as a result thereof, a revised Notice of Assessment will be mailed to the Taxpayer. If the documentation is not available within the specified period, the assessment will be considered correct as issued.
Please contact ****** in my Office of Tax Policy at******if you have any questions regarding this letter.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9959T
Rulings of the Tax Commissioner