Document Number
13-240
Tax Type
Motor Vehicle Fuel Sales Tax
Description
Virginia Fuels Wholesale Sales Tax; VFD does not qualify for exemption provided in Va. Code § 58.1-2226
Topic
Exemptions
Records/Returns/Payments
Date Issued
12-27-2013

December 27, 2013



Re: § 58.1-1821 Application: Motor Vehicle Fuel Sales Tax

Dear *****:

This will reply to your letter in which you seek correction of the motor vehicle fuel sales tax assessment issued to ***** (the "Taxpayer") for the period January 2010 through September 2011. I apologize for the delay in responding to your appeal.

FACTS


The Taxpayer, located in another state, sells motor vehicle fuel to distributors and end users in Virginia. In addition, the Taxpayer sells residential and commercial fuel oil and provides heating and air conditioner services and repairs. As a result of the Department's audit, the Taxpayer was assessed the tax on sales of fuel in a transportation district that were not supported by a valid certificate of exemption. At issue is the tax assessed on sales of motor fuel to ***** (collectively, the "VFD"). The Taxpayer claims that sales of fuel to the VFD are exempt and qualify as sales to a local government entity. In support of its claim, the Taxpayer states that the Virginia Department of Motor Vehicles (the "DMV") conducted an audit in 2010 and found the VFD to be county entities and exempt from the DMV motor fuels excise tax. Based on the DMV audit position, the Taxpayer assumed the VFD to be exempt from the motor vehicle fuel sales tax as well.

DETERMINATION


Law Change

The Department issued Public Document (P.D.) 09-180 (11/19/09) that addresses a law change for the motor vehicle fuel sales tax and provides, in part:
    • Prior to January 1, 2010, the Motor Vehicle Fuel Sales Tax was imposed in the Transportation Districts at the rate of 2 percent of the sales price charged by retail dealers of fuel to their customers. The tax was collected by retail dealers of fuel from their customers and remitted to TAX [the Department of Taxation].
    • Effective January 1, 2010, the Motor Vehicle Fuel Sales Tax will be collected by distributors of fuels at the rate of 2.1 percent of the sales price charged by the distributor to any retail dealer for retail sale in a Transportation District. (Source: Va. Code § 58.1-1720) [repealed effective 7/1/13]. [Inserts added.]

These same guidelines address retail sales by distributors and states:
    • A distributor that sells fuel at retail from a pump [and for delivery] is deemed to have made a sale of the fuel to itself for retail sale [in accordance with Va. Code § 58.1-1720]. As such, he is considered both the distributor and the retail dealer for the purposes of the Motor Vehicle Fuel Sales Tax and is subject to the tax. The distributor must report and remit the Motor Vehicle Fuel Sales Tax on such sales to TAX in the same manner as sales to other retail dealers. However, the sales price in such cases is the cost price to the distributor of the fuel. Because the distributor is the retail dealer, the Motor Vehicle Fuel Sales Tax will not be refunded to his customers, except for sales that qualify under the "Exemptions" section above when a refund would be appropriate, (Source: Va. Code § 58.1-1718.1, repealed effective 7/1/13.) [Emphasis added.]

The Department revised the guidelines and rules for the motor vehicle fuel sales tax as a result of House Bill 1329 (Acts of Assembly 2010, Chapter 441). The Department issued P.D. 10-101 (6/22/10) to address the law changes regarding the motor vehicle fuel sales tax:
    • Effective July 1, 2010, transportation and delivery charges are included in the sales price for the purposes of the Motor Vehicle Fuel Sales Tax, regardless of whether the charges are separately stated on the invoice, and are taxable. Separately stated federal diesel excise taxes continue to be exempt from the Motor Vehicle Fuel Sales Tax. [P.D. 10-101 supersedes P.D. 09-180 regarding these changes.]

Keeping these authorities in mind, I will address the contested issues raised in the Taxpayer's appeal.

Sales to the VFD

A VFD conducted not for profit is classified as a nonprofit organization exempt from income taxation pursuant to Sec. 501 (c) (3) of the Internal Revenue Code. As such, the VFD does not qualify for the exemption provided in Va. Code § 58.1-2226 for motor fuel sold and delivered to a governmental entity for the exclusive use by the governmental entity.

The Taxpayer's audit covers the period of the law change that requires the Taxpayer to pay the motor vehicle fuel sales tax on sales of fuel to the end consumer. Prior to January 1, 2010, the retail sale of fuel to the VFD qualified for the exemption granted to nonprofit organizations pursuant to Va. Code § 58.1-609.11. However, beginning January 1, 2010, the imposition of the motor vehicle fuel sales tax changed from the retail sale of the fuel to the end consumer, to the wholesale sale of fuel from the distributors to the retailers. Because the basis for the imposition of the tax changed from retail to wholesale, the nonprofit exemption in Va. Code § 58.1-609.11 was no longer available to the VFD, and no other exemption from the motor vehicle fuel sales tax exists for the VFD. Accordingly, the Taxpayer was required to charge the motor vehicle fuel sales tax on its sale of fuel to the VFD. Because it failed to do so, the Taxpayer is liable for the tax on such sales assessed in the audit.

While the auditor correctly held taxable the sale of fuel to the VFD, the tax was assessed on the retail sales price of the fuel rather than calculated on the Taxpayer's cost price. The same applies to the tax assessed on non-contested sales of fuel to end consumers held in the audit. Therefore, I will allow the Taxpayer 30 days from the date of this letter to provide the Department documentation to adjust the audit liability based on the cost price of the fuel sold to the VFD. If the Taxpayer does not provide the information within the allotted time, the assessment will be considered correct based on the best information available during the audit.

DMV Audit

Virginia Code § 58.1-1835 states:
    • The Tax Commissioner shall abate any portion of any tax, interest, and penalty attributable to erroneous advice furnished to the taxpayer in writing by an employee of the Department acting in his official capacity if:
  • 1. The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;
    2. The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and
    3. The facts of the case described in the written advice and the request therefor are the same, and the taxpayer's business or personal operations have not changed since the advice was rendered.

The Taxpayer provides no evidence that it received written guidance from an employee of the Department that the VFD is a government entity and exempt of the tax. Additionally, as evidenced by P.D. 09-180 and P.D. 10-101 cited above, the correct written guidance regarding the imposition of the motor vehicle fuel sales tax was issued by the Department in 2009 and was available to the Taxpayer during the audit period. Therefore, I am unable to abate the assessment based on the assertion that the DMV deemed sales to the VFD to be exempt sales to a government.

Important Notice

Effective July 1, 2013, Va. Code §§ 58.1-1719 and 58.1-1720 are repealed and the administration and collection of the Virginia motor vehicle fuel sales tax transferred from the Department to the DMV. The DMV has notified distributors of these important changes in the administration and collection of the motor vehicle fuel sales tax, now referred to by the DMV as the Virginia Fuels Wholesale Sales Tax. If the Taxpayer has any questions regarding the changes, it should contact the DMV or go to the DMV web site located at www.dmvnow.com.

CONCLUSION


In accordance with this determination, the Taxpayer is allowed 30 days from the date of this letter to provide the Department documentation to adjust the audit liability based on the cost price of the motor vehicle fuel sold to the end consumer. If the Taxpayer does not provide the information within the allotted time, the assessment will not be revised and an updated bill will be issued to the Taxpayer. No interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Payment should be sent to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****.

The Code of Virginia sections, public documents and other referenced documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. To arrange for the review of documentation or if you have any questions concerning this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
                • Sincerely,



Craig M. Burns
Tax Commissioner



AR/1-5078854358.T


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46