January 31, 2019
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf ***** (the “Taxpayer”), in which you seek correction of the retail sales and use tax assessment issued for the period October 2010 through June 2013. I apologize for the delay in responding to your appeal.
FACTS
The Taxpayer is an auto auction service provider that assists insurance companies in disposing of vehicles declared a total loss. Relying on Virginia Code § 58.1-609.10 4, Title 23 of the Virginia Administrative Code (VAC) 10-210-780 and Public Document 12-123 (7/30/12), the auditor assessed sales tax on untaxed sales of total loss vehicles to foreign purchasers, finding that the sales were not exempt sales in interstate commerce.
The Taxpayer maintains that the assessment of tax in the audit is erroneous. The Taxpayer asserts that, in accordance with Virginia Code § 58.1-609.10 2, the sales of the vehicles at issue are subject to the motor vehicles sales and use tax and not the retail sales and use tax. Should it be found that the motor vehicles tax is not applicable, the Taxpayer maintains that the vehicles were sold for resale to the foreign purchasers pursuant to exemption certificates, in accordance with Virginia Code § 58.1-623 A, P.D. 92-18 (4/14/92) and P.D. 95-316 (12/15/95). Finally, the Taxpayer contends that the sales qualify for the interstate commerce exemption, in accordance with Virginia Code § 58.1-609.10 4.
DETERMINATION
Motor Vehicle Sales and Use Tax
Relying on Virginia Code § 58.1-609.1 2, the Taxpayer maintains that the Motor Vehicle Sales and Use Tax Act applies to the sales at issue, and that the retail sales and use tax is not applicable in this instance. The Taxpayer states that the retail sales and use tax does not apply because the purchaser holds a valid title issued by the Department of Motor Vehicles (DMV).
Virginia Code § 46.2-1600 defines a salvage vehicle as:
(i) Any late model vehicle that has been (a) acquired by an insurance company as a part of the claims process other than a stolen vehicle or (b) damaged as a result of collision, fire, flood, accident, trespass, or any other occurrence to such an extent that its estimated cost of repair, excluding charges for towing, storage, and temporary replacement/rental vehicle or payment for diminished value compensation, would exceed its actual cash value less its current salvage value; (ii) any recovered stolen vehicle acquired by an insurance company as a part of the claims process, whose estimated cost of repair exceeds 75 percent of its actual cash value; or (iii) any other vehicle that is determined to be a salvage vehicle by its owner or an insurance company by applying for a salvage certificate for the vehicle, provided that such vehicle is not a nonrepairable vehicle.
Virginia Code § 46.2-1600 defines a nonrepairable vehicle as “any vehicle that has been determined by its insurer or owner to have no value except for use as parts and scrap metal or for which a nonrepairable certificate has been issued or applied for.”
Virginia Code § 46.2-1603 governs the issuance of salvage certificates to owners of vehicles titled in the Commonwealth. Virginia Code § 46.2-1603 G states:
The Department, upon receipt of an application for a salvage certificate for a vehicle titled in the Commonwealth, or upon receipt of notification from an insurance company or its authorized agent as provided in subsection D of this section, shall cause the title of such vehicle to be cancelled and the appropriate certificate issued to the vehicle’s owner.
Virginia Code § 46.2-1603.2 governs the issuance of nonrepairable certificates to the owners of vehicles titled in the Commonwealth. Virginia Code § 46.2-1603.2 D provides that:
The Department, upon receipt of an application for a nonrepairable certificate for a vehicle titled in the Commonwealth, or upon receipt of notification from an insurance company or its authorized agent as provided in subsection C of this section that a vehicle registered in the Commonwealth has become a nonrepairable vehicle, shall cause the title of such vehicle to be cancelled and a nonrepairable certificate issued to the vehicle’s owner.
The vehicles at issue are deemed salvage or nonrepairable vehicles in accordance with Virginia Code § 46.2-1600. As such, salvage certificates or nonrepairable certificates were issued to the insurance companies with respect to the total loss vehicles at issue, and the title and registration issued by DMV would have been cancelled in accordance with the aforementioned authorities. Accordingly, I find that the purchaser would not hold a valid title issued by DMV, and that, in accordance with Title 23 VAC 10-210-990 A, the sale of such vehicles would thus be subject to the retail sales and use tax, and not the motor vehicle sales and use tax.
Resale Exemption
Virginia Code § 58.1-623 A provides, in pertinent part, 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 provides 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. If an exemption pertains to a nonprofit organization, other than a nonprofit church, that has qualified for a sales and use tax exemption under Virginia Code § 58.1-609.11, the exemption certificate shall be valid until the scheduled expiration date stated on the exemption certificate.
Title 23 VAC 10-210-280 A interprets Virginia 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.”
When making exempt sales to its domestic and foreign purchasers, the Taxpayer requires that its customers provide a Multistate Tax Commission (“MTC”) multijurisdictional exemption certificate and documentation demonstrating that the customers are registered dealers of motor vehicles or parts in the purchasers’ home states or nations. Relying on P.D. 95-316, the Taxpayer contends that the multijurisdictional exemption certificate meets the test required by the statute and qualifies as a blanket exemption certificate that can be accepted in lieu of the Virginia resale exemption certificate, Form ST-10. In P.D. 95-316, the blanket exemption certificate provided by the taxpayer and the Form ST-10 were compared. Based upon that comparison, the Tax Commissioner allowed use of the blanket certificate, provided that it contained all of the information that was required for the completion of the Form ST-10. Additionally, the blanket certificate was limited to the exemption allowances listed on the Form ST-10.
The multijurisdictional exemption certificates provided with the Taxpayer’s appeal require that the purchaser presenting the certificate to certify that the purchaser is registered with at least one of the states listed on the form. In this instance, the Taxpayer’s foreign purchasers are not registered with any of the states listed on the exemption certificates presented. In accordance with Virginia Code § 58.1-623 and Title 23 VAC 10-210-280, the exemption certificates are not valid on their faces and could not have been accepted in good faith by the Taxpayer when the sales at issue were made. Additionally, while the ruling in P.D. 95-316 allows a blanket exemption certificate to be used to make purchases exempt of the sales tax, the public document is not controlling in this instance because the Taxpayer’s foreign purchasers are not registered with the states listed on the exemption certificate.
Virginia Code § 58.1-623 clearly states the information required to be included on an exemption certificate to support an exempt sale. “Statutes granting tax exemptions are construed strictly against the taxpayer.” Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155, 198 S.E.2d 619 (1973). “Exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption.” Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1972). The documentation provided by the Taxpayer from the foreign purchasers’ countries regarding the nature of their businesses does not include the information required by the statute to determine whether the resale exemption applies in this instance. Additionally, the Department has no way of verifying the authenticity or the intended purpose of the documentation provided. Accordingly, the documentation is insufficient to prove an exempt sale for resale.
Relying on P.D. 92-18, the Taxpayer also argues that even without the provision of the aforementioned documentation, the fact that the Taxpayer cannot make sales to end user customers under its Virginia DMV licenses supports its contention that the sales at issue are exempt sales for resale. In P.D. 92-18, the taxpayer, a beer wholesaler, requested a ruling regarding the records that it must retain to document exempt sales for resale. The Tax Commissioner stated that although exemption certificates are virtually always required to demonstrate exempt sales for resale, the laws and regulations governing beer wholesaling in Virginia makes is possible to verify exempt sales without obtaining exemption certificates. Accordingly, the Tax Commissioner ruled that exemption certificates would not be necessary in instances where a beer wholesaler sold to retailers licensed by ABC or to other licensed wholesalers, and complete and accurate records were kept by the wholesaler.
While the ruling in this public document provides an alternative record keeping option for beer wholesalers, this ruling is not applicable in this instance. This ruling is based upon the unique circumstances that are connected with beer wholesalers. I find that the Taxpayer’s situation is not similar to that of the taxpayer in the public document. Accordingly, the ruling in P.D. 92-18 cannot be applied to these circumstances to determine that the sales at issue are for resale.
Interstate Commerce
Virginia Code § 58.1-609.10 4 provides that the retail sales and use tax does not apply to the “Delivery of tangible personal property outside the Commonwealth for use or consumption outside of the Commonwealth. Delivery of goods destined for foreign export to a factor or export agent shall be deemed to be delivery of goods for use or consumption outside of the Commonwealth.”
Title 23 VAC 10-210-780 A provides that:
The tax does not apply to sales of tangible personal property in interstate or foreign commerce. A sale in interstate or foreign commerce occurs only when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. The following examples illustrate transactions in interstate and foreign commerce to which the tax does not apply:
1. The sale of tangible personal property delivered to the purchaser outside of the state in the seller's vehicle;
2. The sale of tangible personal property delivered to the purchaser outside of the state by an independent trucker or contract carrier hired by the seller;
3. The sale of tangible personal property delivered by the seller to a common carrier or to the U.S. Post Office for delivery to the purchaser outside of the state;
4. The purchase of tangible personal property for resale and immediate transportation out of the state by a dealer properly registered in another state provided a valid certificate of exemption is secured by the Virginia seller.
As used in this regulation, the term "foreign commerce" includes the delivery to a factor or agent of tangible personal property for foreign export, provided the property is delivered by the seller to the factor or export agent in the seller's vehicle, by common carrier, by licensed contract carrier or independent trucker hired by the seller or by U.S. mail.
The Taxpayer contends that the Export Administration Regulations (the “EAR”) expressly require that a forwarding agent handle all transportation of goods exported overseas. The Taxpayer further contends that this forwarding agent is a factor or export agent as considered in the aforementioned authorities.
I disagree with the Taxpayer that the EAR expressly requires that a forwarding agent handle all transportation of export goods overseas. The EAR is administered by the U.S. Department of Commerce, and regulates the export of “dual-use items”. The control provisions of the EAR are intended to serve the national security, foreign policy, nonproliferation of weapons of mass destruction, and other interests of the United States, which in many cases are reflected in international obligations or arrangements. See, 15 CFR § 730.6. The EAR does not require that a party to a transaction (seller or buyer) hire a forwarding agent. Rather, the EAR requires that the items being exported be properly determined and controlled for EAR purposes. A forwarding agent can be hired to perform this task, but the parties to the transactions are ultimately responsible for complying with the EAR requirements.
I further disagree that a forwarding agent is a factor or export agent as considered in the Virginia statute and regulation. In P.D. 90-112 (7/23/90), the taxpayer ordered merchandise from a seller outside of Virginia to be delivered to one of its missionaries who was temporarily on furlough, to be taken overseas and used in mission work. The taxpayer requested a ruling on whether its employee, the missionary, could be considered an agent for export of merchandise used overseas, in accordance with the regulation. 1 The Tax Commissioner ruled that the terms “factor” and “export agent” as stated in the statute and regulation, referred to a middleman or jobber who sells merchandise for a manufacturer. Accordingly, the taxpayer’s missionary who exported merchandise overseas was not considered a factor or export agent.
In this instance, the agent who assists the buyer with the EAR requirements and who acts as a forwarding agent for the buyer would not be considered a factor or export agent as considered in the aforementioned authorities. A forwarding agent facilitates the transport of goods from one place to another, and would not be considered a middleman or jobber with respect to the sale of the total loss vehicles from the Taxpayer to the foreign buyers.
Further, Title 23 VAC 10-210-780 A provides that a sale in interstate commerce occurs when title or possession to the property being sold passes to the purchaser outside of Virginia and no use of the property is made within Virginia. The Tax Commissioner addressed this issue in P.D. 12-123, finding that a sale in interstate commerce occurred when the taxpayer was able to demonstrate that it had hired a freight broker to arrange for shipment of the vehicles sold to the taxpayer’s customer, as considered in Title 23 VAC 10-210-780. Based upon a review of the documentation provided with the Taxpayer’s appeal, I am unable to determine that title or possession of the property at issue passes to the Taxpayer’s foreign purchasers outside of Virginia. The Taxpayer has not provided documentation to demonstrate that shipment of the total loss vehicles was arranged for by the Taxpayer as provided in the regulation. For this, and the reasons stated above, the interstate commerce exemption does not apply to the transactions at issue.
CONCLUSION
Based upon this determination, the assessment is correct. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 30 days from the date of the bill. Please remit your payment to: Virginia Department of Taxation, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219, Attn: *****. If you have any questions concerning payment of the assessment, you may contact ***** at *****.
The Code of Virginia sections, regulations and public documents 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 response, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
Commonwealth of Virginia
AR/590.P
___________________________
1 The regulation citation in the public document is VR 630-10-51. When the regulations were reorganized by the Department, this regulation was given the current citation as stated above, Title 23 of the Virginia Administration Code 10-210-780.