May 10, 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 August 2012 through April 2016. I note that the bills at issue have been paid in full.
FACTS
The Taxpayer operates retail automobile parts and paint stores in Virginia. The Taxpayer sells automobile parts and supplies to various customers, including automobile repair and body shops and automobile refinishers and painters. At issue is the sale of blades, tape, sand pads, brushes, wax grease removers and waterborne pre-cleaners and other consumable items sold exempt of the tax to customers for whom the Taxpayer had on file resale certificates of exemption.
The Taxpayer claims that the auditor, based solely on the assumption of the use of the items by their description, were consumed in the customers' businesses and not resold and, therefore were subject to the tax. The Taxpayer argues that major companies and other competitors in the industry rely on the resale exempt certificate provided by their customers and do not charge the tax in similar situations unless they are asked to do so by the customer. Because of this similarity, the Taxpayer contends there was no reason to believe that the customers in these sales transactions were not reselling the items at issue. The Taxpayer claims that it accepted in good faith resale certificates of exemption from its customers and requests that the contested sales be removed from the Department's audit.
DETERMINATION
Virginia Code § 58.1-603 imposes a tax upon every person who engages in the business of selling at retail or distributing tangible personal property in Virginia. 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 then states, in 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.
The acceptance of a valid exemption certificate in good faith requiring a dealer to exercise reasonable care and judgment is at issue here. This principle is addressed in International Paper Company v. Virginia Department of Taxation, CL -2009-360, Circuit Court of Fairfax County, July 29, 2010. See P.D. 10-258 (10/25/10). In that case, the court held that a dealer could satisfy the good faith and reasonable care and judgment standards in taking a certificate to the effect that the property purchased is exempt if:
Upon a facial examination of the certificate, a dealer could reasonably conclude that the items purchased could potentially be used for any of the exempt purposes claimed on the certificate of exemption; or
Based upon the actual dealer's knowledge of the business of its purchaser, the dealer could reasonably determine in good faith that the specific purchaser intended to use the items purchased for one or more of the exempt purposes claimed on the certificate of exemption.
In this instance, the Taxpayer, based on its facial examination of the certificate of the business of its purchasers, could reasonably have determined in good faith that its customer could be reselling the contested sales at issue. Accordingly, I find sufficient cause to remove the contested sales from the Department's audit.
CONCLUSION
The contested assessments will be revised in accordance with this determination. Because the assessments have been paid, a refund of the overpaid amount of tax and interest will be refunded as soon as practical. Interest on such overpayment amount will also be issued in accordance with Va. Code § 58.1-1833 A.
The Code of Virginia sections and public document cited 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 about this determination, please contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1045.T