Tax Type
Retail Sales and Use Tax
Description
Contract carrier vs. common carrier
Topic
Collection of Delinquent Tax
Date Issued
10-09-1996
October 9, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***************
This is in reply to your letter in which you seek correction of sales and use tax assessed to *********(the "Taxpayer") for the period January 1992 through March 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer operates as a motor vehicle carrier of property. As a result of the department's audit, tax was assessed on recurring purchases. The Taxpayer protests the tax on certain purchases and believes that it is entitled to the exemption provided under Code of Virginia § 58.1-609.3(3).
DETERMINATION
Code of Virginia § 58.1-609.3(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 (SCC) or the Interstate Commerce Commission (ICC) in order to qualify for the exemption. The regulation only applies to common carriers of property by motor vehicle.
The Taxpayer indicates that it holds a certificate of convenience and necessity issued by the ICC and that it exclusively engages in business as a common carrier. The Taxpayer also has contract carrier authority issued by the ICC. It is my understanding that the Taxpayer was deemed a contract carrier in the prior audit and that its operations remained unchanged during the current audit period. It is also my understanding that the auditor requested the necessary records to distinguish exempt activities from taxable activities, but such information was not provided. The Taxpayer, however, has submitted its tariff schedule that provides rate information for various origination and destination points. The department does not rule out that, to some extent, the Taxpayer may be engaged in common carrier activity. Based on the available information and the fact that the Taxpayer is certificated as both a common and contract carrier, the Taxpayer may, in fact, operate in the dual capacity of a common and contract carrier.
In instances where property is used to provide exempt common carriage and taxable contract carriage, 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. Prior determinations which clearly set forth this policy are enclosed.
I will allow the Taxpayer an opportunity to provide the additional records and data which will enable the auditor to determine revenue derived or miles traveled pursuant to common carrier rates. If convincing evidence is provided, the auditor will apply the exemption on a prorated basis to the property used in the common carrier activity. Recent rulings in which similar treatment was provided to other motor carriers of property are also enclosed.
In accordance with the above, the auditor will contact the Taxpayer and the Taxpayer will have 60 days from the date of this letter to provide the requested information. Adjustments to the audit report, if necessary, will be finalized in that time. Shortly thereafter, the Taxpayer will receive an updated bill with interest accrued through the date of the letter of protest.
If you have any questions concerning the determination in this letter, you may contact ****at*******. Questions regarding the requested information or possible adjustments to the audit should be directed to******at
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10170J
Rulings of the Tax Commissioner