Tax Type
Retail Sales and Use Tax
Description
Untaxed purchases of tangible personal property used or consumed: Invalid exemptions
Topic
Exemptions
Records/Returns/Payments
Tangible Personal Property
Date Issued
10-04-2012
October 4, 2012
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter of March 19, 2012, in which you request correction of the retail sales and use tax assessment issued to (the "Taxpayer") as a result of an audit for the period May 2008 through April 2011.
FACTS
The Taxpayer is a remanufacturer and wholesale distributor of remanufactured drive train components. An audit of the Taxpayer's sales and use tax registrations resulted in the assessment of sales tax on untaxed sales of tangible personal property in which the certificate of exemption was not on file or was determined to be invalid. Consumer use tax was also assessed on untaxed purchases of tangible personal property used or consumed in the Taxpayer's Virginia operations.
In regard to purchases assessed in the audit, the Taxpayer contends that certain purchases were duplicated in the audit. The Taxpayer also contends that all purchase accounts were not used in calculating the sample error factor.
In regard to sales assessed in the audit, the Taxpayer presents exemption certificates obtained at the time of the contested sales and requests that the Department accept them as taken in good faith.
DETERMINATION
Duplicated Invoices
Based on the documentation presented, the duplicated purchase items will be removed from the audit.
Error Factor for Purchases
The sampled purchase accounts included in the audit are tools and supplies, truck expenses, and advertising because these were the purchase accounts with tax deficiencies. The Taxpayer requests a revision of the sample population to include other accounts reviewed by the auditor but excluded from the sample population because no deficiencies were found. Those other purchase accounts are entertainment, miscellaneous, office supplies, and travel and promotion. The requested revision would also result in an increase to the total purchase population used to extrapolate the error deficiency. The audit will be revised accordingly.
Exemption Certificates
In regard to ***** (Customer One), the Taxpayer provides four certificates. The first one is a resale exemption certificate (Virginia Form ST-10) that is not dated and therefore is considered incomplete and invalid. The second one is a resale exemption certificate that is dated August 17, 2011 and complete in all other respects. However, it is not applicable to the audit period in question because the entire audit period precedes the date on the certificate. The third certificate is a multi-jurisdiction sales tax exemption certificate not issued by the Virginia Department of Taxation. It is dated January 7, 1999 and certifies that Customer One is purchasing for resale and lists such customer's Virginia account number. The fourth certificate is dated January 25, 2012, and is complete in all respects. However, the fourth certificate has no application to the audit period because the entire audit period precedes the date of the certificate.
Accordingly, based on the third certificate provided, although not a Virginia exemption certificate, I find that it can be considered accepted in good faith and has sufficient certification information to be accepted for the audit period in question. Accordingly, the two sales made to Customer One that were included in the sales sample will be removed from the audit.
Based on the resale exemption certificate furnished by ***** (Customer Two) and dated May 23, 2001, it can be considered accepted in good faith for the sales made to Customer Two during the audit period in question. Accordingly, the sale made to Customer Two that was included in the sales sample will be removed from the audit.
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- In regard to sales made to ***** (Customer Three), the Taxpayer indicates that
For an item to be removed from the audit sample, the Taxpayer must show that the transaction was isolated in nature and not a normal part of the Taxpayer's operation. While the Taxpayer has identified three customers to whom it erroneously sold exempt of the tax for a part of the audit period, these untaxed sales were not single events that were unusual in nature. Rather, they were a normal part of the Taxpayer's operations up until October 2009. For this reason, the audit will be revised to use two sales samples. One sample will include sales to Customer Three using the established error factor and cover the periods May 2008 through September 2009. The error factor of the other sample will exclude sales made to Customer Three and such sample will cover the periods October 2009 through April 2011.
Based on the resale exemption certificate furnished by ***** (Customer Four) and dated August 11, 1994, it can be considered accepted in good faith for sales made to Customer Four during the audit period in question. Accordingly, the sale made to Customer Four that was included in the sales sample will be removed from the audit.
In regard to sales made to ***** (Customer Five), the resale exemption certificate presented was denied by the auditor on the basis that a federal employer identification number (FEIN) was used rather than the Virginia certificate of registration number. In Public Document (P.D.) 11-8 (1/20/11), the Tax Commissioner ruled that a FEIN was not appropriate for use on the Form ST-10. Unlike the situation in P.D. 11-8, for the audit period in question, the Virginia certificate of registration number has included the FEIN as part of the registration number. Accordingly, I find that use of the FEIN on the Form ST-10 in this instance will not invalidate the good faith acceptance of the certificate provided no other deficiencies are found on it.
In reviewing Customer Five's certificate, it appears to be complete in all other respects. Customer Five indicated that it was engaged in the auto repair business. As such, on the surface, it appears that Customer Five was entitled to the resale exemption, and the resale exemption certificate should be considered as accepted in good faith by the Taxpayer. Accordingly, the sale made to Customer Five will be removed from the sample. However, based on a review of the Department's dealer records, I understand that Customer Five is not registered to collect the retail sales tax and, therefore, is not entitled to claim the resale exemption. As such, the resale exemption certificate presented by Customer Five is not valid and is now deemed unacceptable. For the future, the Taxpayer should charge the sales tax on sales of tangible personal property made to Customer Five.
In regard to sales made to ***** (Customer Six), the resale exemption certificate presented was denied by the auditor on the basis that the FEIN was used instead of the Virginia certificate of registration number. While the Virginia certificate of registration number, and not the FEIN, should have been used, it is more important to note that the space provided on the certificate for the "Kind of business engaged in by dealer" was left completely blank. As such, this customer failed to provide all of the necessary information needed for a valid exemption certificate. Such certificate cannot be considered accepted in good faith under these circumstances. For example, using the FEIN provided, we found that it belongs to a motor vehicle towing service. A towing service is generally not engaged in the wholesale or retail sale of goods. Rather, a towing service is generally engaged in the provision of services and is generally taxable on its purchases of tangible personal property. Furthermore, the FEIN belongs to a taxpayer that may or may not be Customer Six. The names and addresses are different from what is shown on the exemption certificate. Thus, a description of the "kind of business engaged in by dealer" is needed and should not be excluded from the resale certificate of exemption. The certificate presented by Customer Six is unacceptable and should not have been relied upon by the Taxpayer. Accordingly, the sale made to Customer Six will remain in the audit sample. Thus, the Taxpayer should charge the sales tax on sales of tangible personal property made to Customer Six.
Based on the information presented for sales to ***** (Customer Seven) and ***** (Customer Eight), such sales will receive the same tax and exemption treatment as given the sales made to Customer Three.
CONCLUSION
The appropriate field audit staff will revise the audit in accordance with this determination. Because the bills are paid in full, a refund of the overpaid portion will be issued to the Taxpayer as soon as practical along with interest owed to the Taxpayer pursuant to Va. Code § 58.1-1833.
The Code of Virginia section cited is available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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Craig M. Burns
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- Tax Commissioner
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AR/1-5047013043.R
Rulings of the Tax Commissioner