99-26 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Exemption certificates and direct pay permits; Burden of proof

Topic

Collection of Delinquent Tax

Exemptions

Date Issued

03-15-1999

March 15, 1999

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear **********

This is in reply to your letter in which you seek correction and refund of the department's sales and use tax assessment issued to ***** (the "Taxpayer'), for the period July 1995 through April 1998. I note that the entire assessment has been paid.

FACTS

The Taxpayer is a distributor of machinery, repair parts, hand tools and supplies used in the textile industry. The department's audit assessed the Taxpayer on certain untaxed sales of tangible personal property. The Taxpayer contends that the contested items are exempt of the tax because they are used directly by customers in their manufacturing processes.

DETERMINATION

- Code of Virginia § 58.1-623(A), copy enclosed, states that:
  
  All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter.
  
  Paragraph B of this same section provides that:
  
  The certificate mentioned in this section shall relieve the person who takes such certificate from any liability for the payment or collection of the tax, except upon notice from the Tax Commissioner that such certificate is no longer acceptable.

In the instant case, the Taxpayer made untaxed sales to certain customers. It may be that these customers are industrial manufacturers, and, if so, these customers may have used the contested items directly and exclusively in an exempt ***** manufacturing activity. It is difficult, however, for the department to exempt such sales based on the seller's assumptions and suppositions as to how its products will be used. This is true even when other customers use the seller's products in an exempt manner.
It is for this reason that certificates of exemption and direct pay permits are so vitally important to retail sales and use tax transactions. Certificates of exemption allow customers to purchase property exempt of the tax based on the customer's knowledge of its own business activity and how purchased property will be used.

Based on the information currently before me, I find that the assessment is correct. However, I will pend this case for an additional 60 days to allow the Taxpayer an opportunity to provide certificates of exemption or direct payment permit numbers relating to the contested sales. These documents may be sent to ***** at the department's Office of Tax Policy, Post Office Box 1880, Richmond, Virginia 23218-1880. If you have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.

Sincerely,

Danny M. Payne
Tax Commissioner

OTP/17646Q

Rulings of the Tax Commissioner