Tax Type
Retail Sales and Use Tax
Description
Exemption certificate is not consistent with the type of exemption claimed
Topic
Collection of Delinquent Tax
Exemptions
Date Issued
10-15-1999
October 15, 1999
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear********
This will reply to your letter in which you seek the correction of an assessment issued to ***** (the "Taxpayer'), for the period January 1995 through December 1997. The Taxpayer also contests the denial of a refund claim. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer sold several pizza ovens to a customer and billed sales tax on the invoice to the customer. The Taxpayer reported and paid the sales tax on its July 1994 sales tax return. The customer notified the Taxpayer that an exemption certificate was on file with the Taxpayer and no sales tax should be charged on the transaction. The Taxpayer issued the customer a credit memo and a corrected invoice without sales tax, and filed a claim for refund of sales taxes remitted to the department in August 1995. The Taxpayer later began taking credits on its sales tax returns to recover the sales tax credited to the customer.
The department audited the Taxpayer and disallowed the credits from the sales tax returns because the exemption certificate was not valid. The Taxpayer maintains that the refund should be allowed because the exemption certificate was accepted from the customer in good faith, and the department did not notify it that the customer's certificate was not acceptable.
DETERMINATION
Title 23 of the Virginia Administrative Code 10-210-280(A) states 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. The certificate remains in effect until notice from the Department of Taxation that it is no longer acceptable. However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.
The Taxpayer has provided the department with a copy of the customer's resale exemption certificate, Form ST-10. The certificate has been completed and signed by the customer. The customer indicates on the certificate that it is engaged in the business of manufacturing and distributing pizza products. Title 23 VAC 10-210-280(B) requires dealers to exercise reasonable care and judgement to prevent the receipt of false, fraudulent, or bad faith exemption certificates. This same section states 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.'
The wording on the customer's exemption certificate is not consistent with the type of exemption claimed. The customer has claimed the resale exemption for the purchase of pizza ovens; however, the customer states on the certificate that it sells and distributes pizza products. The purchase of pizza ovens by this type of business is generally a taxable transaction, as the pizza ovens are not resold, but rather are used in the operation of the business.
Accordingly, the audit assessment is correct and the refund and related credits taken by the Taxpayer on its sales tax returns were properly disallowed. An updated bill will be issued to the Taxpayer and should be paid within thirty days from the date of this letter to avoid the accrual of additional interest. If the Taxpayer has any questions, please contact ***** at *****
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner