Tax Type
Retail Sales and Use Tax
Description
Exemption certificates; Certificates of exemption
Topic
Exemptions
Date Issued
09-03-1997
September 3, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter in which you seek correction of a sales and use tax assessment issued to *********(the Taxpayer) for the period January 1993 through December 1995. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a retail grocery store. At issue is the tax assessed as a result of disallowed food stamp sales. The audit revealed that the Taxpayer did not take into consideration the taxable coin change from the redemption of the food stamps but reported the total amount of food stamps deposited as exempt sales. The Taxpayer contests the assessment and maintains that the percentage used to account for taxable coin change returned to customers from food stamps overstates its liability.
Additionally, the Taxpayer provides documentation to support the fact that the tax was collected by its vendor on tangible personal property held taxable in the audit. Lastly, the Taxpayer maintains that the auditor did not give credit in the audit for sales tax remitted to the department on bad debt charge-offs during the audit period.
DETERMINATION
Disallowed Food Stamp Sales
Title 23 of the Virginia Administrative Code (VAC) 10-210-6070 provides that "the tax does not apply to tangible personal property purchased by individuals with... food stamps issued by the U.S. Department of Agriculture under the Food Stamp Program or... WIC drafts issued through the Virginia Special Supplemental Food Program...." The regulation goes on to state that "all other purchases by food stamp and WIC program participants that are not paid for with food stamps or WIC drafts are subject to the tax."
Title 23 VAC 10-210-6070(D) addresses dealer's returns for reporting food stamp and WIC sales and provides that a dealer may make an exact accounting of such sales or may choose one of two alternative methods as provided in the regulations.
In this case, the Taxpayer reported the total food stamps deposited as exempt sales and did not take into consideration the taxable coin change from the redemption of the food stamps. As a result, the auditor used the 98% alternative method provided in 23 VAC 10-210-6070 to determine the tax liability for coin change returned to customers for food stamps.
The alternative method used by the auditor in this case to allocate taxable coin change from the redemption of food stamps is well established. See Public Document 87-30 (2/20/87), copy enclosed. The Taxpayer has not furnished sufficient documentation to refute the statutory method. Based on the foregoing, there is no basis to adjust the assessment.
For the future, if the Taxpayer chooses to use the percentage method to account for exempt food stamp sales, the Taxpayer may seek authorization from the department to use an alternative percentage to account for coin change returned to customers from food stamps. Any such request must be accompanied by a detailed analysis of not less than one month's food stamp transactions.
Contested Purchases
Based on the documentation provided, l find basis for removing the two contested purchases from the audit. While you maintain that the sales tax has been paid on all purchases held taxable in the audit, adjustments can be made only in those instances where documentation is provided. To maintain compliance with Title 23 VAC 10-210-470 for the future, the Taxpayer is expected to retain all of its original sales invoices to ensure that it can substantiate payment of the sales tax charged by its vendors.
Bad Debt Deduction
The deduction for bad debts must be computed in the manner set forth in Title 23 VAC 10-210-160. It is my understanding that the deduction was denied in this case as the auditor was unable to verify the amount for bad debts claimed by the Taxpayer. The Taxpayer did not have copies of the customers' checks and was unable to substantiate the period, the check amount, and if the sale was exempt or taxable.
In this case, there is an absence of documentation to verify the amount for bad debts claimed by the Taxpayer. Without such documentation, the auditor was justified in denying the deduction for the bad debts.
Exempt Sales
The auditor held taxable sales made exempt of the tax due to the absence of exemption certificates on file. As indicated in your letter, you are trying to obtain certificates of exemption for these sales; however, some of the dealers are no longer in business. You also indicate that in the closing of three of your locations, many of the records are either misplaced or missing.
In the absence of a valid exemption certificate from these customers, the Taxpayer is not relieved from any liability for the payment or collection of the tax and becomes directly liable for the tax. A member of my staff has attempted to confirm that the customers in question were registered dealers, but due to the limited information, has been unable to locate a registration for the dealers in question. Accordingly, unless the Taxpayer can furnish resale exemption certificates, there is no basis to revise the audit.
Summary
The assessment will be adjusted to remove the contested purchases. Based on the information presented, l find no basis for adjusting the audit with respect to bad debt charge-offs, disallowed food stamp sales and, retail sales. Nevertheless, l will allow the Taxpayer an opportunity to provide the department with additional information regarding these issues. This information should be sent to Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880 within 90 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 received within the specified time period, the assessment will be considered correct as issued.
If you have any questions regarding this letter, please contact ***** at*******
.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12534T
Rulings of the Tax Commissioner