May 25, 2021
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This is in response to your letter on behalf of ***** (the “Taxpayer”) in which you seek the correction of the retail sales and use tax assessment for the period April 2014 through March 2017. I note that the assessment is paid in full. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer is a multi-level marketing firm that sells anti-aging personal care products and nutritional supplements through a network of independent distributors located in Virginia, the United States and worldwide. In situations where a distributor in Virginia is registered to collect and remit retail sales and use tax to the Department and presents a valid exemption certificate, the Taxpayer allows the distributor to collect and remit the sales tax after the distributor’s sale to its customer. In all other cases, the Taxpayer collects and remits the sales tax on behalf of its distributors. As a result of the Department’s audit, the Taxpayer was assessed sales tax on untaxed sales to distributors where the auditor determined the resale exemption certificates were not valid for the types of products sold. The Taxpayer appeals, contending that the exemption certificates were accepted in good faith and the sales should be removed from the audit
DETERMINATION
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 or 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.
Title 23 of the Virginia Administrative Code (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.” Title 23 VAC 10-210-280 B then states that “[r]easonable care and judgement must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax free purchase of any items of tangible personal property not covered by the exact wording of the certificate”.
Public Document (P.D.) 13-35 (3/18/2013) addresses the use by dealers of reasonable care and judgement with respect to exemption certificates. Dealers are expected to review certificates for completeness and to verify that the class of items being sold falls within the scope of the wording of the exemptions certificate.
In P.D. 12-68 (5/3/2012), the taxpayer was a commercial printer. The audit of the taxpayer’s sales and use tax records resulted in the assessment of sales tax on untaxed retail sales of various materials for which an exemption certificate was obtained. The taxpayer maintained that the contested sales should not be included in the audit because it acted properly in accordance with the law and regulations in accepting the exemption certificates. In one such instance, the taxpayer’s customer purchased gold pens from the taxpayer. The taxpayer provided its customer’s Form ST-10 with its appeal and the resale block on the exemption certificate is checked. The kind of business listed for the customer is a hotel. The resale exemption certificate was accepted by the taxpayer for the exempt sale of pens. Based upon an examination of the exemption certificate, the Department determined that a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Therefore, while a dealer is required to have an understanding that the class of items being sold falls within the scope of the wording of the exemption certificate, it is not required for the kind of business listed for the customer to be exclusively related to the class of item being sold.
Keeping this in mind in addition to the cited authorities, the exemption certificates furnished by the Taxpayer have been reviewed and the use of the certificate for the sales in question evaluated. Each customer listed below purchased various personal care products and nutritional supplements from the Taxpayer. In addition, with the exception of Customer 1 as discussed below, each exemption certificate is appropriately dated, signed by and bears the name and address of the customer along with the certificate of registration number in accordance with the requirements of Virginia Code § 58.1-623 B.
***** (“Customer 1”)
The Taxpayer has not provided its customer’s Form ST-10. The absence of such certificates at the moment of the transaction indicates that such certificates were not accepted in good faith or that the Taxpayer did not exercise reasonable care or judgement. Therefore, there is no basis to remove the contested sales as related to this customer from the audit.
***** (“Customer 2”)
The Taxpayer provided its customer’s Form ST-10, dated August 20, 2010, with the resale exemption block checked. The kind of business listed for this customer is a dealer of health, wellness and cosmetic products. Based on an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, the contested sales as related to this customer will be removed from the audit.
***** (“Customer 3”)
The Taxpayer provided its customer’s Form ST-10, dated October 3, 2014 with the resale exemption block checked. The kind of business listed for this customer is a hair salon. The date of the subject transactions for this customer were in 2015, after the date of the exemption certificate. Based on an examination of the exemption certificate and the customers engaging in a personal care business, a dealer could reasonably conclude that the personal care products and nutritional supplements purchased were for resale as claimed on the exemption certificate. Accordingly, the contested sales as related to this customer will be removed from the audit.
***** (“Customer 4”)
The Taxpayer provided its customer’s Form ST-10, dated July 11, 2007 with the resale exemption block checked. The kind of business listed for this customer is a dealer engaged in the resale of personal care items, vitamins and general merchandise. Based on an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, the contested sales as related to this customer will be removed from the audit.
***** (“Customer 5”)
The Taxpayer provided its customer’s Form ST-10, dated July 20, 2007 with the resale exemption block checked. The kind of business listed for this customer is a dealer engaged in the resale of personal care items, vitamins and general merchandise. Based on an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, the contested sales as related to this customer will be removed from the audit.
CONCLUSION
The assessment will be revised in accordance with this determination. Because the assessment has been paid, a refund of the overpaid amount of tax and interest will be refunded as soon as practical. Interest on such overpayment will be issued in accordance with Virginia Code § 58.1-1833 A.
The Code of Virginia section, 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 website. 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/1517.A