Tax Type
Retail Sales and Use Tax
Description
Assessed sales tax on untaxed sales of prepaid telephone access cards
Topic
Collection of Tax
Guidelines
Property Subject to Tax
Taxable Transactions
Date Issued
02-25-2014
February 25, 2014
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek the correction of a sales and use tax assessment issued to ***** (the "Taxpayer") for the period of May 2010 through April 2013.
FACTS
The Taxpayer operates a gasoline station in Virginia. The Department audited the Taxpayer and assessed sales tax on untaxed sales of prepaid telephone access cards. The Taxpayer states that the assessment is unfair because the Taxpayer was unaware that the sales tax should be charged on sales of telephone cards. The Taxpayer contends that this is the reason the tax was not collected during the audit period on sales of telephone access cards to customers. The Taxpayer asserts that the Department should have provided informative materials or directly communicated to affected retailers that such phone card sales are taxable.
The Taxpayer notes that it is unable to pay the full amount of the assessment due to a lack of liquidity and may have to go out of business if the assessment is upheld. The Taxpayer seeks the waiver of the entire assessment. Alternatively, a settlement for one-half the assessment amount is requested.
DETERMINATION
Sales Tax Collection
Virginia Code § 58.1-603 imposes the retail sales tax on "every person who engages in the business of selling at retail or distributing tangible personal property in this Commonwealth ...." The 2004 Session of the Virginia General Assembly amended the definition of "tangible personal property" in Va. Code § 58.1-602 to include the initial sale of telephone calling cards. The 2004 Legislative Summary, published by the Department as Public Document 04-40 (8/1/04), discusses this legislative change, which became effective as law on July 1, 2004. Thus, retail sales of telephone calling cards on or after this date are subject to the sales tax collection requirements set out in the Code of Virginia.
It is well established that dealers making retail sales of tangible personal property are liable for the sales tax even if they fail to collect the tax from customers. Virginia Code § 58.1-625 D states that "[a]ny 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 ...." While it is true that the Taxpayer did not collect the sales tax on telephone card sales, Virginia law provides that the seller is liable for payment of the uncollected sales tax.
Notification by the Department
The Taxpayer states that it is common practice for sellers not to charge the tax on sales of telephone cards. The Taxpayer suggests that the Department has targeted for audit sellers of telephone cards without prior communications or warnings that the sale of telephone cards is subject to sales tax.
Virginia Code § 58.1-204 requires the Department to publish regulations and written rulings or other interpretations of Virginia law which are of interest to taxpayers and tax practitioners. The Department employs various methods to disseminate information concerning the sales and use tax and other taxes administered by the agency. The Department issues tax bulletins and public documents to clarify tax issues and concerns. An annual legislative summary is published to provide information to the public concerning tax legislation passed by the Virginia General Assembly. All of this information is available to the public.
Taxpayers may perform tax transactions and seek tax guidance from the Department's website located at www.tax.virginia.gov. The Department of Taxation offers a variety of online services through this website. Taxpayers can file tax returns, make tax payments, view account history, research tax issues, obtain legislative updates, print copies of tax forms and communicate with the Department through secure email or secure online chat. This site is available for use by the general public and was constructed to be as user friendly as possible.
The Laws, Rules and Decisions section of the website contains a repository of publications and guidance documents that provide information about the application of Virginia tax laws. Rulings and appeal determinations made by the Tax Commissioner, tax bulletins, legislative summaries and Attorney General opinions are available and the Tax Code of Virginia can be accessed as well. This section of the website also contains tax regulations published in the Virginia Administrative Code, which assist in interpreting the various tax statutes in the Code of Virginia.
The Department's Customer Services Unit may also be contacted for verbal or written advice by phone, email or in writing if there is a question regarding the application of the various taxes administered by the Department. Moreover, it is the responsibility of every registered dealer and tax representative to be aware of the law and to keep informed about changes in the law. Until an audit is conducted, the Department assumes the dealer has complied with all tax statutes and regulations. Ignorance of the law, or changes in the law, is not a valid basis to waive a tax assessment.
Settlement Request
The Taxpayer requests the waiver of the full assessment, or at a minimum, the waiver of one-half the assessment. The Department's records indicate that the Taxpayer has paid one-half the original assessment in the amount of *****. Virginia Code § 58.1-105 B authorizes the Tax Commissioner to compromise and settle doubtful or disputed claims for taxes or tax liabilities of doubtful collectibility. While I understand that the Taxpayer did not collect the tax assessed in the audit from its customers, the law is clear that the Taxpayer was required to collect the sales tax on telephone card sales and was properly held liable for the tax it failed to collect. Further, the audit assessment is not doubtful because the auditor performed a detailed audit to identify the untaxed telephone card sales.
Financial Hardship
The Taxpayer indicates that it has insufficient cash liquidity to pay the full amount of the assessment. As such, the Taxpayer may wish to request an offer in compromise based on doubtful collectibility. However, the Taxpayer must present evidence of doubtful collectibility to support a claim of financial hardship. If the Taxpayer wishes to pursue a settlement based on doubtful collectibility, please complete and return the following enclosed forms: Offer in Compromise Business Request For Settlement and Financial Information Statement For Businesses. The completed forms should be sent to: Tax Commissioner, Virginia Department of Taxation, Attn: CICT, P.O. Box 2475, Richmond, VA 23218-2475. For assistance, please contact a member of this team at (804) 367-8045. The Department will review the Taxpayer's financial situation and a response will be issued based on the information presented.
Installment Payment Plan
The Taxpayer has indicated it may wish to set up an installment payment plan to pay the balance of the audit assessment. If this is the case, the Taxpayer should contact the Department's Collections Unit at (804) 367-8045 to set up the payment plan. A representative in that unit will be able to provide the necessary assistance. Please note that, under the terms of the payment plan, interest will accrue on the outstanding assessment balance until the assessment plus the accrued interest is paid in full. The terms of the Department's payment plans are voided if a taxpayer defaults on the payment plan once it is established. If default on the payment plan occurs, the assessment is considered due and payable, an updated bill with accrued interest will be issued to the Taxpayer and collection of the assessment will be initiated.
CONCLUSION
In accordance with this determination, there is no basis for waiver of the Taxpayer's assessment or for the settlement of the assessment based on doubtful liability. The Taxpayer may file an offer in compromise based on doubtful collectibility or contact the Department to set up a payment plan within 30 days from the date of this letter. If the Department does not receive the completed forms or a payment plan request from the Taxpayer within 30 days from the date of this letter, a revised bill, with interest accrued to date, will be mailed to the Taxpayer. The bill should be paid within 30 days from the date of the bill to avoid the accrual of additional interest.
The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department's web site. If you have any questions concerning this determination, please 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
Tax Commissioner
AR/1-5513665717.S
Rulings of the Tax Commissioner