Document Number
Tax Type
Retail Sales and Use Tax
Wholesaler of Cigarettes, Exemption Certificates
Tobacco Products
Date Issued

September 8, 2017

Re:    § 58.1-1821 Application:  Retail Sales and Use Tax

Dear *****:

This is in response to your letter submitted on behalf of ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessment issued for the period March 2014 through March 2016.  I apologize for the delay in responding to your request.


The Taxpayer sells cigarettes and other tobacco products.  As a result of the Department's audit to verify retail sales tax compliance on purchases of cigarettes by retail and wholesale dealers, the Taxpayer was issued an assessment for the tax and interest on untaxed cigarettes purchases.

Because the Taxpayer did not have sufficient records at the time of the audit, the auditor used the best available information to determine the audit liability.  In this instance, the auditor used sales information provided by distributors on the Taxpayer's purchases of cigarettes for resale.  The auditor multiplied the cartons of cigarettes purchased by an estimated selling price of $48.00 per carton to estimate the audit liability.

The Taxpayer contests the assessment and maintains that it is a wholesaler and is not required to collect sales tax on cigarettes it sells to dealers for resale.  The Taxpayer provides copies of resale exemption certificates and customer invoices to support the exempt sale of cigarettes held in the audit.  In addition, the Taxpayer argues that the sales measure used by the auditor to determine the audit liability is overstated based on the Taxpayer's master cigarette sales report of the top seven customer cigarette accounts.

The Taxpayer requests that the assessment be abated based on the fact that the Taxpayer is a wholesaler of all cigarettes sold to dealers for resale.  However, should the Department determine that the Taxpayer does not sell exclusively for resale, the Taxpayer requests that the sales measure be reduced to reflect the Taxpayer's sales records.



Virginia Code § 58.1-633 B states:

In order to aid in the administration and enforcement of the provisions of this chapter, all wholesalers and jobbers in this Commonwealth shall keep a record of all sales of tangible personal property, whether such sales be for cash or on terms of credit.  Such records shall include the name and address of the purchaser, the number of the certificate of registration issued to the purchaser, the date of the purchase, the article purchased, and the price at which the article is sold to the purchaser.  Any wholesaler or jobber failing to keep such records shall be guilty of a Class 1 misdemeanor.  Any person who is both a retailer and a wholesaler or jobber and who fails to keep proper records showing wholesale sales and retail sales separately shall pay the tax as a retailer on both classes of his business.


Title 23 of the Virginia Administrative Code (VAC) 10-210-6080 states:

Every wholesaler is required to keep a record of all sales of tangible personal property, whether such sales be for cash or credit.  These records must include the name and address of the purchaser, the number of the Certificate of Registration issued to the purchaser, the date of the purchase, the article purchased and the price at which the article is sold to the purchaser.  Records must be kept for three years.


During the performance of the audit, the Taxpayer did not provide sufficient records to support that the cigarettes sold to customers qualify as exempt sales for resale.  Without such records, the Department is authorized to issue an assessment based upon the best information available, in accordance with Va. Code § 58.1-618.

Exemption Certificates

Virginia Code § 58.1-623 A provides that:

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 states that:

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 VAC 10-210-280 A interprets Va. Code § 58.1-623 and states “a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.”  [Emphasis added.]  Public Document 98-29 (2/20/98) sets out the Department's longstanding policy that the absence of an exemption certificate at the time of a sales transaction indicates that the certificate was never accepted in good faith.  In such instances, exemption certificates are subject to greater scrutiny by the Department and are acceptable only if the Department can confirm that a customer's use of the certificate was valid and proper for a specific transaction identified during an audit.


In its appeal, the Taxpayer provides documentation, such as invoices and Form ST-10 resale certificates of exemption to support its contention that it operates solely as a wholesaler and all sales to customers are exempt sales for resale.  Therefore, the audit will be returned to the audit staff to review the additional documentation.  Further, I find no basis to adjust the sales measure in this instance because the auditor used actual cigarette sales provided by the Taxpayer's suppliers.

Following the completion of the document review, the audit assessment will be revised to remove sales supported by valid resale certificates of exemption.  An updated bill with accrued interest will be issued to the Taxpayer for the outstanding balance on the bill, if any. The bill should be paid within 30 days to avoid the accrual of additional interest.

I understand that you requested a conference prior to my determination of this matter.  Because this is a documentation issue that is currently under review by the audit staff, I believe that a meeting at this time is not necessary.

The Code of Virginia sections, regulation and public document cited are available on-line at in the Laws, Rules and Decisions 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 *****.



Craig M. Burns
Tax Commissioner



Last Updated 10/03/2017 11:23