Tax Type
Retail Sales and Use Tax
Description
Government transactions; Meals and lodging furnished to state or federal employees
Topic
Taxability of Persons and Transactions
Date Issued
05-19-1997
May 19, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear***********************
In your letter of December 3, 1996, you seek reconsideration of my prior determination concerning the sales and use tax assessment issued to *************** (the Taxpayer).
FACTS
The Taxpayer operates a resort hotel. An audit for the period of February 1992 through January 1995 resulted in the assessment of tax on certain untaxed sales and purchases. Although the audit was previously revised, the Taxpayer seeks reconsideration of the tax assessment.
The Taxpayer maintains that charges for room rentals and meals furnished to employees of state and local government agencies are exempt of the tax based on evidence showing that these agencies had requested that these sales not be taxed. In addition, the Taxpayer requests removal of certain room charges made to employees of federal agencies. The Taxpayer also claims that the audit should be revised to remove miscellaneous charges. The Taxpayer further claims a bad debt deduction for some sales as a customer had refused to pay the entire bill. The Taxpayer believes that the audit included charges for long distance telephone calls, U. S. postage stamps, boat ramp services, dry storage services, and utility sales.
DETERMINATION
Code of Virginia § 58.1-633 and 23 Virginia Administrative Code (VAC) 10-210-470 provide, in part, that every dealer liable for the collection and remittance of the sales tax is required to keep and preserve for at least three years adequate and complete records necessary to accurately determine its sales and use tax liability. This regulation requires dealers to keep records of all deductions and exemptions claimed in filing sales and use tax returns, including exemption and resale certificates and records on bad debts.
When a dealer fails to maintain adequate and complete records to support its claims of exempt sales, the department has no legal authority to accept those claims of exemption in the absence of supporting records and must consider such sales to be taxable unless evidence to the contrary is provided. When the department makes an assessment of tax, Code of Virginia § 58.1--205 deems the assessment to be prima facie correct. Accordingly, the Taxpayer has the burden of proving that the assessment is erroneous.
I would also note that the courts have long held that exemptions from the retail sales and use tax are to be strictly construed, as are exemption certificates issued by the department. For instance, 23 VAC 10-210-280 provides that "[a]n exemption certificate cannot be used to make a tax-free purchase of any item of tangible personal property not covered by the exact wording of the certificate." (Emphasis added). Furthermore, when a dealer such as the Taxpayer does not receive a valid exemption certificate from its customer, this regulation clearly sets out that the transaction is subject to the tax.
Lodging and meals
State and local government agencies. Code of Virginia § 58.1-609.1 (4) and 23 VAC 10-210--690(B) provide no exemption for purchases of taxable services, such as lodging and meals, by state and local government agencies. Consequently, the Form ST-12 exemption certificate does not contain a statement that taxable services are exempted. Accordingly, even if the Taxpayer had accepted a Form ST-12 exemption certificate from a state or local government agency, the certificate, cannot be used to exempt a state or local government's purchase of meals and lodging.
The Taxpayer maintains that the department cannot assess sales taxes on sales made to state and local agencies who requested exemption from the tax. Although the Taxpayer believes that it is unfair to tax these sales and to include them in the department's sample, l must recognize that there is no statutory authority to waive the tax assessed on the charges at issue. Furthermore, it is my understanding that the Taxpayer has provided no evidence to the department that it had received and relied on misinformation from state or local government agencies during the period of audit. Moreover, Code of Virginia § 58.1-625 mandates that all dealers are legally obligated to collect the tax on taxable sales. If a dealer neglects, fails or refuses to collect the tax on taxable sales, the dealer becomes directly liable for the tax and is thus required to pay the tax himself. Based on the all of the foregoing, l find no basis to remove such sales from the audit.
Federal government agencies. Federal law prohibits states from imposing a sales or use tax on any type of sale made to, and paid for directly by, the federal government. Since 1985, 23 VAC 10-210-690(A) has set out the department's policies on these matters. Accordingly, no sales tax applies to sales of meals and lodging to the federal government, provided such sales are supported by the proper documentation (i.e., federal government purchase order or copy of federal government credit card or the receipt showing the card's impression) which clearly proves that payment was made directly by the federal government.
In this case, the Taxpayer has not shown that the taxable services were paid for directly by the federal government. Rather, the available documentation supports a conclusion that the sales at issue were charged to employees of the federal government. In the absence of evidence to the contrary, we must presume that such sales were paid for with individual funds (a taxable event) rather than paid for directly by the federal government.
Other contested charges for services, bad debt deduction etc.
As mentioned above, the Taxpayer has the burden of proving that a tax assessment should not apply. The Taxpayer has not met its burden of proof as it has not furnished any conclusive evidence that the other charges at issue were actually assessed in the department's audit. It is my understanding that the Taxpayer has identified these other charges as "miscellaneous" charges on the customer's invoice or has not separately identified and separately charged for them. Although the department reviewed the Taxpayer's daily sheets, sales invoices, and reported taxable sales, none of the remaining charges and deductions at issue were noted.
Based on all of the foregoing, I find no basis to consider any further revisions to the department's audit. Accordingly, l must consider this response to be my final determination on this matter.
Under separate cover, the Taxpayer will receive updated bills **** for a total outstanding liability of **** if the department does not receive full payment on these assessments within the next 30 days, further interest charges will be added.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12127R
Rulings of the Tax Commissioner