June 29, 2017
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek the correction of retail sales and use tax assessments issued to ***** (the “Taxpayer”) for the period November 2012 through October 2015. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer operates retail department stores. The Taxpayer purchased store fixtures from a fabrication business located in Oklahoma. Oklahoma sales taxes were paid on the purchases. The Taxpayer hired common carrier trucking companies to pick up the store fixtures at the fabricator's business location and transport the fixtures to Virginia store locations. The Taxpayer was billed by and paid the transportation carriers for the delivery of the store fixtures.
The auditor concluded that the fixture purchases were exempt sales in interstate commerce, and the Oklahoma sales taxes were erroneously charged by and paid to the fabricator. As a result, the Taxpayer was assessed Virginia use tax on the cost price of the fixtures delivered to and used in Virginia. The Taxpayer maintains that the transactions were properly taxed as Oklahoma sales, and the sales tax was properly paid to the fabricator. As such, the Taxpayer contends that a credit for the Oklahoma sales taxes paid should be allowed in the audit, which offsets the Virginia use tax liability assessed on the fixture purchases.
During the audit period, the Taxpayer reported and paid to the Department a fixed amount of estimated consumer use taxes on its monthly sales tax returns. The consumer use tax liability for the period was overpaid. The Taxpayer contests the Department's exclusion from the audit of credits for the use tax overpayments.
DETERMINATION
Credit for Sales Taxes Paid
Virginia Code § 58.1-611 states that:
A credit shall be granted against the taxes imposed by this chapter with respect to a person's use in this Commonwealth of tangible personal property purchased by him in another state. The amount of the credit shall be equal to the tax paid by him to another state or political subdivision thereof by reason of the imposition of a similar tax on his purchase or use of the property. The amount of the credit shall not exceed the tax imposed by this chapter.
Title 23 of the Virginia Administrative Code (VAC) 10-210-450 interprets the credit provisions of Va. Code § 58.1-611. Subsection A of the regulation states that:
Any person who purchases tangible personal property in another state and who has paid a sales or use tax to such state or its political subdivision or both on the property, is granted a credit against the use tax imposed by Virginia on its use within this state for the amount of tax paid in the state of purchase. This credit does not require that the state of purchase grant a similar credit for tax paid to Virginia. This credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund. [Emphasis added.]
The auditor did not allow credits in the audit for the retail sales taxes paid to Oklahoma on the basis that the sales tax was incorrectly paid to that state. The auditor deemed the sales to the Taxpayer to be exempt sales in interstate commerce. Like the state of Virginia, Oklahoma provides an exemption from the sales and use tax for sales in interstate commerce. If the Taxpayer's fixture purchases are exempt sales in interstate commerce in the state of Oklahoma, the payment to the vendor of Oklahoma sales tax on these transactions is erroneous. As such, the credit provisions of Va. Code § 58.1-611 would not apply to the sales transactions and the Virginia use tax would be due on the Taxpayer's purchase and use of the store fixtures in Virginia.
Oklahoma Administrative Code (OAC) 710:65-15-1 addresses exempt sales in interstate commerce. OAC 710:65-15-1 (b) (2) discusses the interstate commerce exemption with respect to the shipment of tangible personal property from the state of Oklahoma and states, in part:
If tangible personal property is sold within this State and possession is taken by the buyer outside this State, the tax does not apply if the property is not to be used in Oklahoma. Possession is taken by the buyer outside this State only if either of the following is met:
- The seller is obligated to personally deliver the tangible personal property outside this State; or
- The seller is, by terms of the sales contract, obligated to deliver the tangible personal property to a common carrier or to the mails for transportation outside this State.
The Taxpayer hired common carriers to pick up the store fixtures at the Oklahoma fabricator's business location and then deliver the fixtures to its Virginia stores. Documentation was provided that confirms the Taxpayer hired and paid the transportation carriers to pick up and deliver the store fixtures. As a result, the Taxpayer maintains that possession of the store fixtures was taken in the state of Oklahoma and that Oklahoma sales tax was properly due on the transactions at issue.
Pursuant to OAC 710:65-15-1 (b) (2) (B), possession is taken outside the state by a purchaser of goods when the seller delivers the tangible personal property to a common carrier for transportation out of the state of Oklahoma. The fabricator delivered the store fixtures to the common carriers hired by the Taxpayer for delivery to its Virginia store locations. The regulation as written does not restrict the interstate commerce exemption to Oklahoma sales in which the seller hires the common carrier to deliver the goods to another state. In addition, the regulation does not contain language that deems retail sales that occur in Oklahoma to be taxable in that state if the buyer hires a common carrier to pick up and transport the purchased goods out of the state.
Of further importance are the provisions of Oklahoma Sales Tax Code § 681354.27, which addresses the sourcing of retail sales in Oklahoma. Paragraph 1 of subsection A states that “[w]hen the product is received by the purchaser at a business location of the seller, the sale is sourced to that business location ....” [Emphasis added.] Oklahoma Sales Tax Code § 68-1354.27 E interprets this sourcing rule as follows:
For the purposes of this section, the terms "receive" and "receipt" mean:
- Taking possession of tangible personal property;
- Making first use of services; or
- Taking possession or making first use of digital goods, whichever comes first. The terms “receive” and “receipt” do not include possession by a shipping company on behalf of the purchaser. [Emphasis added.]
Based on the Oklahoma authorities cited, the fabricator's sales of the store fixtures to the Taxpayer are sales in interstate commerce and qualify for exemption from the tax in the state of Oklahoma. The Taxpayer, as the purchaser, hired common carriers to pick up the fixtures in Oklahoma for delivery into Virginia. For Oklahoma sales and use tax purposes, the Taxpayer did not take possession of the fixtures in that state. Oklahoma's treatment of such sales transactions is consistent with the treatment of interstate sales transactions by the state of Virginia. Therefore, the Taxpayer's payment of Oklahoma sales taxes to the fabricator was erroneous. In accordance with Title 23 VAC 10-210-450, the auditor was correct in not allowing credits in the Taxpayer's audit for the Oklahoma sales taxes paid on the store fixture purchases.
Consumer Use Tax Credits
The Taxpayer initially contested the exclusion from the audit of credits for consumer use tax overpayments that occurred during the audit period. I understand that this issue has been resolved by the Department's audit staff. The consumer use tax overpayment for the audit period has been applied to the audit bills.
The Department's records indicate that the audit bills issued to the Taxpayer have been paid in full. Therefore, no further action is required.
The Code of Virginia section and regulation 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 *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/882.S