Rulings of the Tax Commissioner

May 18, 2021

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 assessments issued for the period November 2013 through March 2017. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer, a veterinary office in Virginia, changed ownership in November 2013. As a result of the Department’s audit, the Taxpayer was assessed sales tax on sales made to customers independent of the provision of professional services on which the tax was not collected or remitted to the Department.

The Taxpayer contends they relied on the advice of the former owner’s accountants and were not made aware they should be collecting sales tax on their sales to customers. The Taxpayer would like a portion of the audit abated, holding that they paid the sales tax to vendors at the time of purchase. Because it paid taxes at the time of purchase, the Taxpayer believes it should only have to remit the tax on the difference between the purchase price and the marked up price it charged to customers. 

DETERMINATION

Taxpayer Responsibility

Though the Taxpayer was operating under the guidance utilized by the previous business owner, Virginia Code § 58.1-629 explains that the liability for any previous operation errors after the acquisition of a business rests with the purchaser. Stating, “[the] successors or assigns, if any, shall withhold sufficient or the purchase money to cover the amount of such taxes, penalties, and interest due and unpaid until such former owner produces a receipt from the Tax Commissioner showing that they have been paid or a certificate stating that no taxes, penalties, or interest is due.”

Pursuant to Virginia Code § 58.1-204, the Department is required to publish regulations and written rulings or interpretations of Virginia law that are of interest to taxpayers and the general public. The Department employs various methods to disseminate information concerning the sales and use tax and other taxes it administers which are available to the public. It is the responsibility of every registered dealer to be aware of the law and to keep informed about changes in the law. 

Veterinary Retail Sales

Pursuant to Title 23 of the Virginia Administrative Code (VAC) 10-210-6050, “Veterinarians are engaged in rendering professional services and are the users or consumers of medicines, drugs, medical supplies, equipment and all other tangible personal property purchased for use in their operation. They must pay the tax to their suppliers on purchases of this property.”

The Taxpayer was compliant with this section of the regulation with regard to their business operation, but erred in the treatment of tangible personal property that was purchased, marked up, and sold at retail for purposes unrelated to the treatment of patients.

Title 23 VAC 10-210-6050 B goes on to explain “veterinarians who maintain an inventory for the purpose of making sales of medicines, drugs, flea powder, soap, pet food, dog collars and similar items at retail must register with the Department of Taxation and collect and pay the tax on such sales.”

The Taxpayer agreed the tangible personal property held as taxable in the audit was sold to customers unrelated to the provision of professional services. While the Taxpayer has provided invoices demonstrating the tax was paid at the time of purchase from vendors, the Taxpayer has also indicated they subsequently marked up the costs and sold the items at retail to customers without charging sales tax. As the Taxpayer was a retailer with respect to such sales, the Taxpayer should have purchased the items exempt of the tax using a properly executed resale exemption certificate (Form ST-10), and collected and remitted the tax on the full sales price of the items. 

Sales Tax Paid To Vendors

The Taxpayer contends that remitting the tax as assessed to the Department would be double taxation as part of the tax was paid to vendors prior to markup. In order to ensure the Taxpayer is not unduly burdened, the Taxpayer should seek its refund from vendors for erroneously paid tax on purchases intended for resale.

It is the longstanding policy of the Department that taxes incorrectly paid to vendors are not eligible for credit. To do so jeopardizes the proper allocation of the local sales tax and would disregard any dealer discount claimed by the vendor in reporting taxable sales. Public Documents (P.D.) 97-354 (8/29/1997) and 96-358 (12/6/1996) discuss the Department’s policy with respect to such refunds. 

CONCLUSION

Based on this determination, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within sixty days of the date of the bill. If you have any questions concerning payment of the assessment, you may contact the Delinquent Collections Unit at (804) 367-8045.

The Code of Virginia sections, regulation 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 Department’s Office of Tax Policy, Appeals and Rulings, at *****.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1440.A