Rulings of the Tax Commissioner

February 21, 2023

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

This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the retail sales and use tax assessment issued for the period May 2016 through April 2022.  

FACTS

The Taxpayer sells and installs HVAC units and fireplaces to customers in Virginia. The Taxpayer also makes some retail sales of tangible personal property to its customers. An audit by the Department for the audit period at issue resulted in an assessment of tax, penalty, and interest for untaxed sales and untaxed purchases. The assessment also included tax and penalty due for sales tax that was collected and not remitted to the Department. The Taxpayer contests the assessment, alleging that the tax assessed as collected unremitted was a clerical error and asserting that tax was already paid on the untaxed purchase exceptions included in the audit. The Taxpayer notes that it is a contractor and should not charge tax to its customers. In its appeal, the Taxpayer states that additional information and documentation is forthcoming, but no documentation has been received as of the date of this letter. 

DETERMINATION 

Tax Collected Unremitted

Virginia Code § 58.1-625 provides, in part, that “[a]ny dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously or illegally collected tax unless or until it can affirmatively show that the tax has since been refunded to the purchaser or credited to its account.”

During the audit, the auditor reviewed invoices and other documentation provided by the Taxpayer. The auditor determined that the Taxpayer collected sales tax from its customers on certain sales made during the audit period, but failed to file sales tax returns with the Department. The Taxpayer’s claim that this was a clerical error is without merit. The documentation reviewed during the audit shows that tax was collected from the Taxpayer’s customer. According to the aforementioned authorities, the Taxpayer was required to remit all taxes it collected from its customers to the Department, even if such tax was erroneously collected.  

Retail Sales

Virginia Code § 58.1-603 imposes the retail sales and use tax on every person “who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth.” The tax is collected by all persons who are “dealers” as defined in Va. Code § 58.1-612. Pursuant to subsection B 3 of this statute, the term “dealer” includes any person that:

Sells at retail, or that offers for sale at retail, or that has in its possession for sale at retail, or for use, consumption, or distribution, or for storage to be used or consumed in this Commonwealth, tangible personal property.

In addition to its classification as a consuming contractor, the auditor determined that the Taxpayer also makes some retail sales of tangible personal property to customers without installation and should have collected tax on these sales. Based on the authorities provided above, the untaxed sales will remain in the audit. 

Untaxed Purchases

Virginia Code § 58.1-610 A provides, in part, that:

Any person who contracts orally, in writing, or by purchase order, to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon, and in connection therewith to furnish tangible personal property, shall be deemed to have purchased such tangible personal property for use or consumption. 

The Taxpayer acknowledges its responsibility as a consuming contractor to pay the tax on its purchase of tangible personal property that it later incorporates into real property. While the Taxpayer claims that it has paid tax on its purchases of tangible personal property used in installation jobs, the Taxpayer has not provided documentation, such as invoices and purchase orders, to show that it paid the proper tax.  

CONCLUSION

Virginia Code § 58.1-205 provides that any assessment of tax by the Department is deemed to be prima facie correct and that the burden is on the taxpayer to prove the assessment is erroneous. In this instance, the Taxpayer has not provided documentation to support its contention that the assessment of tax is incorrect. Therefore, the Taxpayer has not met the burden of proof requirement.

The assessment is correct as issued. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 60 days from the date of this letter.  

The Code of Virginia sections cited, along with other reference documents, are available online at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions about the review of documentation, please contact the auditor. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/4287.G