12-129 | Virginia Tax

Tax Type

Retail Sales and Use Tax

Description

Untaxed sales of tangible personal

Topic

Collection of Tax

Exemptions

Records/Returns/Payments

Tangible Personal Property

Date Issued

08-07-2012

August 7, 2012

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

Dear *****:

This reply is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period of March 2008 through January 2011. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer, located in ***** ("State A"), sells tires and provides automotive repair services to Virginia customers. The Taxpayer has sales staff who call on its Virginia customers and perform field repairs in Virginia. The Taxpayer protests the assessment of untaxed sales of tangible personal property and provides additional documentation to support its contention that the sales were made to tax exempt customers.

DETERMINATION

Unless otherwise proven to be exempt, there is a presumption that all sales and leases are subject to the sales and use tax. The dealer's tax collection responsibilities are set forth in Va. Code § 58.1-625, which states "Any dealer who neglects, fails, or refuses to collect such tax upon every taxable sale, distribution, lease or storage of tangible personal property made by him, his agents or employees shall be liable for and pay the tax himself."

Throughout its protest, the Taxpayer argues that it should have been notified by its customers when the proper sales tax was not applied. However, it is the Taxpayer's responsibility to either collect the correct sales tax or secure valid exemption certificates for sales it treats as exempt of the tax. If the Taxpayer fails to correctly tax a transaction, then it is liable for such tax in accordance with the foregoing authority.

Exemption Certificates

Virginia Code § 58.1-623 provides 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 ... Such certificate shall be signed by and bear the name and address of the taxpayer, shall indicate the number of the certificate of registration, if any, issued to the taxpayer, shall indicate the general character of the tangible personal property sold, distributed, leased, or stored under a blanket certificate; and shall be substantially, in such form as the Tax Commissioner may prescribe.

Additionally, Title 23 of the Virginia Administrative Code (VAC) 10-210-280 asserts that reasonable care and judgment must be exercised when receiving certificates and a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable.

The Tax Commissioner has previously ruled in Public Document 98-29 (2/20/98) that an exemption certificate obtained after the start of an audit is subject to greater scrutiny by the Department and such certificates are acceptable only if they are complete and valid.

The Taxpayer presents exemption certificates to support its argument that several sales were incorrectly assessed. However, some certificates presented by the Taxpayer lack tax registration numbers, addresses or descriptions of the type and use of the property being purchased. The certificates presented by the Taxpayer during the appeal are incomplete and, therefore, invalid. Accordingly, as properly completed exemption certificates have not been provided by the Taxpayer to substantiate the protested sales, I find these sales were correctly assessed.

On the other hand, the exemption certificates presented for sales to ***** and ***** are properly completed and acceptable. Therefore, I will agree to remove all sales made to these customers from the assessment.

Handling Fees

According to an invoice for the sale of tangible personal property, the sale included a "handling fee" that was assessed in the audit. The Taxpayer argues that its system does not charge a handling fee and the charge is for delivery labor.

The sales tax is based on the sales price of an article as defined by Va. Code § 58.1-602. The term "sales price" is defined to mean "[t]he total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... without deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever." Absent a statutory exemption, labor or service charges are taxable when made in connection with the sale of tangible personal property.

Virginia Code § 58.1-609.5 3 provides an exemption from the tax for separately stated transportation charges. Title 23 VAC 10-210-6000 states that when transportation charges are not separately stated, or the charges are combined with handling or other taxable charges, they become part of the sales price of the property and are subject to the sales tax.

While the Taxpayer asserts the assessed fee is for delivery labor, it presents no documentation to support its contention that the charge does not include handling services. Therefore, in accordance with the foregoing authorities, I find the handling fee was correctly assessed.

Service Calls

The Taxpayer was assessed for a road service call that included the provision of tangible personal property. The invoice indicates the services were sold to a Virginia customer; however, the Taxpayer argues that it does not provide road services in Virginia. Despite its assertions, the Taxpayer is unable to provide documentation to support its claim that the road service was performed outside Virginia.

Pursuant to the definition of sales price, labor or services are taxable when made in connection with the sale of tangible personal property in the state of Virginia. Additionally, Va. Code § 58.1-205 deems any assessment made by the Department to be prima facie correct. The burden rests with the taxpayer to disprove the assessment. In this case, the Taxpayer has failed to provide documentation to support its contention that the road service was not performed in Virginia. Therefore, I find no basis to remove the charge from the assessment.

Credit

The Taxpayer agrees that it failed to correctly tax two sales assessed in the audit sample used to calculate the measure of error. In the first sale, the Taxpayer states it was made aware the sale was taxable by Customer A when the Taxpayer attempted to secure an exemption certificate during the audit. Customer A subsequently remitted the correct tax to the Taxpayer, which the Taxpayer reported to the Department. In its sale to Customer B, the Taxpayer incorrectly charged ***** tax to its Virginia customer. The Taxpayer offers to refund the ***** tax to Customer B and issue a revised invoice with the correct Virginia tax reflected. The Taxpayer also disputes the sales amounts assessed for Customer B.

Sampling was used to determine the Taxpayer's level of compliance in the audit period. Based on sample period results, the Taxpayer's error in its compliance was measured and projected throughout the remaining periods in the audit. Although the Taxpayer may subsequently collect and remit the correct sales tax from a customer it initially treated as exempt, this does not affect the calculation of the measure of error. The Taxpayer was not compliant during the sample period, as, it failed to initially collect the correct retail sales tax at the time of the transaction. Accordingly, I find no basis to remove the tax or sales assessed for either customer from the sample.

However, I will agree to return the audit to the audit staff for verification of the collection and remittance of the correct sales tax to the Department for Customer A and to determine the correct sales amount for Customer B. If the tax has been remitted for the sale to Customer A, I will agree to reduce the assessed tax by the amount of tax remitted to the Department. Additionally, if warranted, the assessed sales amount for Customer B will be adjusted.

The Taxpayer will be contacted by the audit staff to provide documentation to support its contentions for Customers A and B. If documentation is not provided by the Taxpayer within 45 days of the audit staff's contact date, a revised bill with interest accrued to date will be mailed to the Taxpayer.

The Code of Virginia sections, regulations and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings at *****.

- - - - Sincerely,

- - - - Craig M. Burns
        Tax Commissioner

AR/1-4851178122.M

Rulings of the Tax Commissioner