September 24, 2015
Re: 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the "Taxpayer") for the period February 2009 through January 2012. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is a wholesale seller of tires and accessories to the automotive retail industry. The Department's audit disclosed that the Taxpayer made exempt sales for which invalid exemption certificates were accepted. The Taxpayer also made exempt sales of tires to certain dealers that presented valid resale exemption certificates. The auditor assessed tax on the sales in the latter instance because the dealers were not registered with the Department for the collection of the tire recycling fee (tire tax) imposed under Va. Code § 58.1-641.
The Taxpayer disagrees with the audit results, contending that the sales tax laws do not require that a dealer purchasing tangible personal property for resale, including tires, be registered for the collection of the tire tax before a resale exemption certificate can be accepted. The Taxpayer seeks a revision of the Department's audit and removal of the sales supported by valid resale exemption certificates.
DETERMINATION
Resale Exemption
Virginia Code § 58.1-602 defines "retail sale" to mean:
a sale to any person for any purpose other than for resale . . . All sales for resale must be made in strict compliance with regulations applicable to this chapter. Any dealer making a sale for resale which is not in strict compliance with such regulations shall be personally liable for payment of the tax.
The foregoing statute provides an exemption for sales for resale. The Department's Form ST-10 resale exemption certificate is for use by a dealer who purchases tangible personal property for resale, or for lease or rental, or who purchases materials or containers to package tangible personal property for sale. The retail sales and use tax statutes do not impose the requirement that a dealer purchasing tires for resale be registered for the tire tax. In this case, the Taxpayer accepted valid resale exemption certificates in accordance with Va. Code § 58.1-623. Accordingly, the Department's audit will be revised to exclude from the audit sample tire sales to dealers for resale who submitted valid and complete Form ST-10 resale certificates of exemption.
Exemption Certificates
Virginia Code § 58.1-623 A provides:
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.
Virginia Code § 58.1-623 B provides, in pertinent part:
The certificate mentioned in this section shall relieve the person who takes such certificate from any liability for the payment or collection of the tax, except upon notice from the Tax Commissioner that such certificate is no longer acceptable. 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, or to be sold, distributed, leased, or stored under a blanket exemption certificate; and shall be substantially in such form as the Tax Commissioner may prescribe.
Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A interprets Va. Code § 58.1-623 and states that "a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice."
The Taxpayer made exempt sales that were disallowed because there were no valid or properly completed exemption certificates supporting the exempt sales. Pursuant to Public Document (P.D.) 01-36 (4/11/01), when a dealer is afforded the opportunity to secure exemption certificates to support untaxed sales after the performance of an audit, the Department's long-standing policy is to more closely evaluate the validity of the certificate. The Taxpayer has acquired and submitted updated resale exemption certificates that the auditor has reviewed and allowed. Accordingly, the auditor has revised the audit for those valid certificates.
Compliance Penalty
Virginia Code § 58.1-635 mandates the application of penalty to tax deficiencies. Title 23 of VAC 10-210-2032 B, provides that the application of penalty is determined by the level of tax compliance. For second audits of sales or use tax compliance, penalty will generally apply unless a taxpayer's compliance ratio meets or exceeds 85% for sales tax and 60% for use tax. The Taxpayer's compliance ratio in this second audit is 80% for sales tax and 0% for use tax. Based on these measurements, the penalty was properly applied to the sales and use tax portions of the audit.
The audit will be returned to the appropriate field audit staff for revision. It is possible that the revision may also change the sales tax compliance ratio sufficient to adjust or remove the sales tax compliance penalty. The Department's auditor will provide a revised audit reflecting the Department's final adjustments, and a revised bill that should be paid within 30 days from the date shown on the assessment.
The Code of Virginia sections, regulations and public document cited are available on-line in the Laws, Rules and Decisions section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this matter, please contact ***** of the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-5758035919.Q