Tax Type
Retail Sales and Use Tax
Description
Resales; Sales to leasing companies, manufacturers, and distributors
Topic
Taxability of Persons and Transactions
Date Issued
05-23-1997
May 23, 1997
Re: Request for Ruling: Retail Sales and Use Tax
Dear***************************
In your letter of April 30, 1997, you seek a ruling concerning the application of the retail sales and use tax to certain sales transactions made by **********(the Taxpayer). Copies of all references cited in this letter are enclosed.
FACTS
The Taxpayer is in the business of selling roof truss connector plates and roof truss manufacturing equipment in Virginia. These products are manufactured outside Virginia for sale nationwide mainly to other manufacturers and occasionally to distributors and leasing companies. All shipments are made FOB from the Taxpayer's locations outside Virginia.
Your main concerns are with the application of the sales tax to sales made to distributors and leasing companies and the appropriate exemption documentation to obtain when making exempt sales. For some transactions, the Taxpayer drop ships manufacturing equipment to a location in Virginia on behalf of a leasing company who has purchased the equipment only for lease to its Virginia customer. In other transactions, the Taxpayer sells manufacturing equipment to an independent distributor and drop ships it to the distributor's Virginia customer who will use it directly in an exempt manufacturing process. In addition, the Taxpayer seeks information on registration requirements of leasing companies and distributors. The Taxpayer also seeks information on the manufacturing exemption certificate.
RULING
General rules
Dealer's records. Title 23 of the Virginia Administrative Code (VAC) 10-210-470 requires every dealer registered to collect and remit the sales or use tax to keep and maintain for three years adequate and complete records necessary to determine and substantiate the amount of tax liability, including exemption and resale certificates.
Exemption certificates. 23 VAC 10-21 0-280(A) sets out the general rule that 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 unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice by the department.
Exemption certificates are issued by the department and are available upon request from the department. Form ST-10 is the department's resale exemption certificate and can be used to make an exempt purchase of tangible personal property when the purchaser is buying the item only for resale or for lease or rental purposes. Form ST-11 is an exemption certificate presently containing ten different exemptions. The industrial manufacturing exemptions contained on the Form ST-11 may only be claimed by industrial manufacturers or processors when making purchases of industrial manufacturing machinery, repair or replacement parts thereof, and industrial materials. The Taxpayer is required to have on file only one exemption certificate properly executed by the purchaser.
Sales for future lease
As the leasing company is buying products for lease to their customers, it may purchase such products exempt of the tax, provided it furnishes the Taxpayer with a completed and signed Form ST-10 exemption certificate with item #2 checked.
Although a leasing company is buying equipment for lease only to an industrial manufacturer, a leasing company which is not an industrial manufacturer is not entitled to use the Form ST-11 exemption certificate. The Taxpayer should also not accept a Form ST-11 exemption certificate from the customer of the leasing company since the sales transaction is only between the leasing company and the Taxpayer. Accordingly, the only exemption documentation that is acceptable in this transaction is a completed Form ST-10 exemption certificate submitted by the leasing company. If the proper exemption certificate is not obtained from the leasing company, or no exemption certificate is received from the leasing company, the Taxpayer should charge and collect the sales or use tax based on the selling price of the equipment.
Sales for resale
An independent distributor purchasing manufacturing equipment for resale to its Virginia customer is required to complete and sign a Form ST-10 resale exemption certificate with item #1 checked. If the distributor is not located in Virginia and is not registered to charge and collect the Virginia sales or use tax, it may enter its out-of-state registration number on the Form ST-10 and indicate on the form the state for which the registration applies.
Registration requirements
When a leasing company is leasing tangible personal property in Virginia, it is required to be registered to collect and remit the Virginia retail sales and use tax, regardless of whether it is located within or outside of Virginia. See Code of Virginia § 58.1-612(C)(9) and 23 VAC 10-210-840. This is important to realize because the leasing company's Virginia certificate of registration number for sales and use taxes must be entered on the Form ST-10.
If the leasing company is not registered with Virginia for collection of the sales and use tax at the time of the sale is made by the Taxpayer, the leasing company must immediately register with Virginia in order to exempt their purchase from the tax. Provided the leasing company registers with the Virginia Department of Taxation and indicates a beginning liability date which precedes the sale made by the Taxpayer, it may present a Form ST-10 to the Taxpayer to exempt the transaction from the tax.
If the distributor is located in Virginia and makes retail sales or leases of tangible personal property, it is required to be registered with the department. If the Virginia distributor is not registered to collect the sales tax at the time of the sale made by the Taxpayer, it is not entitled to use an exemption certificate. However, if the Virginia distributor immediately registers with the department and indicates a beginning liability date prior to the sale made by the Taxpayer, it may present a Form ST-10 to the Taxpayer to exempt its purchase from the tax.
If the distributor is located outside Virginia, it is required to be registered with the department if it has sufficient activities within Virginia. See Code of Virginia § 58.1-612(C). If this is the case, the rules stated in the prior paragraph apply.
An out-of-state distributor who does not meet any of the criteria of Code of Virginia § 58.1-612(C) is not required to be registered for the collection of the Virginia sales and use tax. In such instances, the out-of-state distributor should complete the Form ST-10 using the sales tax registration number assigned to them by their own state.
If you have any questions about this response, please contact **** of my Office of Tax Policy at*********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12514R
Rulings of the Tax Commissioner