Tax Type
Retail Sales and Use Tax
Description
Resales; Refund from vendor for erroneous tax payment
Topic
Taxability of Persons and Transactions
Date Issued
08-29-1997
August 29, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This is in reply to your letter of August 8, 1997, in which you seek correction of the department's assessment issued to *****(the "Taxpayer"), for the period June 1994 through May 1997.
FACTS
The Taxpayer operates as an excavating contractor and a retailer of stone and gravel. The department's audit disclosed that the consumers use tax had not been remitted by the Taxpayer on the purchase of an excavator for use in its operations. The Taxpayer states that during the audit period it purchased construction materials, stone and dirt, paying the tax on such materials. In turn, the Taxpayer states that it also collected the tax from customers on its retail sales. As the Taxpayer has paid taxes twice to the Commonwealth, it requests that the tax on the excavator included in the department's audit be waived.
DETERMINATION
Purchase of Excavator
Purchases of tangible personal property by contractors for use in performing a real property contract are taxable to the contractor at the time of purchase as provided in Title 23 of the Virginia Administrative Code (VAC) 10-210-410. This same regulation provides that "if a supplier of a contractor ... does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier." As a contractor, the Taxpayer is the user and consumer of materials purchased.
In the instant case, I note that the supplier is a contractor as well as a dealer making retail sales of equipment. Code of Virginia § 58.1-612 provides that the sales and use tax shall be collectible from all persons who are dealers. The term dealer includes every person who sells at retail, or offers for sale at retail, tangible personal property in Virginia. The supplier meets the definition of "dealer" as defined above and is required to collect the tax on the sale of tangible personal property. As the supplier did not charge the tax on the sale of fixtures in this case, the Taxpayer is responsible for payment of the use tax on these purchases.
Credit for Taxes Paid
The Taxpayer paid the tax on its purchases of materials, and in turn charged the tax on sales of the same material to its customers. As the Taxpayer was a retailer with respect to such sales, the Taxpayer should have purchased the materials exempt of the tax under a resale exemption certificate. Since the Taxpayer purchased resale materials, paid the tax to the supplier, and charged the tax to its customer, it has indeed accounted for the tax twice on these specific transactions.
The department will generally not credit taxes which were incorrectly paid to vendors. Doing so might jeopardize the proper allocation of the local portion of the tax and would also disregard any dealer discount claimed by the vendor originally selling the materials. Further, because taxpayers can obtain refunds from vendors for erroneously paid taxes, allowing a credit on audits for such taxes would be contrary to sound accounting principles. The Taxpayer should seek its refund from its vendor for the tax erroneously paid on resale purchases.
I have enclosed a copy of a previous ruling, P.D. 96-358 (12/06/96), which illustrates the department's longstanding policy with respect to such refunds. The department prefers to refund the tax through the dealer to prevent misallocations of the 1% local sales tax. With respect to the dealer's discount, Code of Virginia § 58.1-1822 limits the amount of a refund to those monies actually paid to the state. Thus, if the dealer or customer makes application for a refund to the department, only the net amount paid to the state can be refunded. For this reason, refunds of this nature are not included as credits in audit findings, and the Taxpayer is accordingly properly advised to seek refunds from its vendors.
Accordingly, the balance of the department's assessment remains due and payable. I will, however, based on the information before me allow for the establishment of a partial payment plan to lessen the immediate impact of the department's assessment on the Taxpayer's operations. A representative of the department's collection section will contact the Taxpayer for purposes of establishing payment dates and amounts. If you should have any questions regarding this matter, please contact ****of the department's Office of Tax Policy at**********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12829Q
Rulings of the Tax Commissioner