June 1,2023
Re: § 58.1-1 821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek the correction of retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period January 2018 through December 2019. I apologize for the delay in responding to your appeal.
FACTS
With its administrative appeal, the Taxpayer has provided documentation that consists of exemption certificates to support exempt sales made by the Taxpayer to its customers. The Taxpayer contends that it attempted to provide an additional 353 exemption certificates and corrected ST-10Cs during the audit, but the auditor refused to review the documentation. For this reason, the Taxpayer requests that the Department review the additional exemption certificates and adjust the audit liability accordingly.
DETERMINATION
Pursuant to Virginia Code § 58.1-623 A, “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.” Title 23 of the Virginia Administrative Code (VAC)1 0-21 0-280 B Virginia Internet Filing and Payment for Businesses and Individuals addresses the cited statute and requires that reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An 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.
When transactions relying on an exemption certificate are afforded greater scrutiny because the dealer failed to receive a valid certificate at the time of sale, the Department’s policy is to determine whether the transaction is exempt in order to avoid collecting the tax when and where it is not due. In order to accomplish this, the Department utilizes a number of inquiry steps. The auditor begins by investigating the tax compliance of the customer by performing a search of the Department’s registration and accounting databases for the customer’s registration status and filing and payment history of sales tax and use tax returns. Once the auditor confirms the customer’s registration and filing history (or lack thereof), the auditor can reasonably conclude whether the purchases made by the customer would be exempt sales for resale (or another exemption) and, if warranted, will remove the sales transactions corresponding to the customer from the audit exceptions list. See Public Document (P.D.) 16-104 (5/25/2016).
The Department takes these additional steps due to the fact that dealers do not have access to the registration and filing histories of their customers and, therefore, cannot reasonably be expected to provide such scrutiny regarding the acceptance of exemption certificates. This is the basis for the good faith acceptance policy applied to the giving and receiving of exemption certificates between dealers and their customers. The Department’s audit staff follows these procedures for contested transactions where additional or updated exemption certificate documentation has been provided by the dealer and/or their customers.
Accordingly, the Taxpayer’s exemption certificate documentation will be returned to the Tobacco Unit audit staff for further review. After the review, the audit staff will meet with the Taxpayer to discuss the results of the review. The audit staff will make adjustments, as warranted, and issue a revised audit report and revised assessment to the Taxpayer. If there are remaining contested issues at that time, the Taxpayer will have 90 days from the date of the revised assessment to submit an appeal in accordance with Virginia Code § 58.1-1821 and Title 23 VAC 10-20-165.
If you have any questions regarding the review of documentation, you should contact ***** in the Department’s Tobacco Tax Unit at *****. If you have any questions about the appeals process, please contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/3624.c