March 15, 2022
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 April 2013 through March 2016.
FACTS
The Taxpayer is a manufacturer and distributor of automotive lifts. The Department’s audit uncovered untaxed transactions with three customers for which appropriate exemption certificates could not be produced, which resulted in the issuance of an assessment. The Taxpayer appeals, contending valid exemption certificates were provided for the three customers at issue and the related transactions should be removed from the assessment.
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.”
When a dealer fails to receive a valid certificate at the time of sale, the “good faith acceptance” privilege is invalidated and the dealer becomes subject to the tax that was not applied to the transaction. While the dealer has the responsibility to prove the transaction is exempt, the Department also applies “greater scrutiny” to determine whether the transaction is exempt in order to avoid collecting tax when it is not due. In doing so, the Department may perform a search of its records to determine if the customer has a registration, as well as a sales and use tax return filing history. Once this search is performed, the Department can reasonably conclude whether the purchase made by the customer would qualify for an exemption, in this case a resale exemption. The Department takes these additional steps because dealers do not have access to the registration and filing histories of their customers and, therefore, cannot reasonably be expected to provide such scrutiny regarding the acceptance of exemption certificates.
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.
***** (Customer 1) and ***** (Customer 2)
Both Customer 1 and Customer 2 were owned by ***** (the “Parent Company”). Following the conclusion of the audit, the Taxpayer provided invoices bearing the names of Customers 1 and 2 and exemption certificates bearing the Parent Company’s name. The Taxpayer explained that both Customers 1 and 2 had been existing customers prior to being acquired by Parent Company.
In Public Document (P.D.) 12-68 (5/3/2012), the Department accepted an exemption certificate that listed an entity’s legal name as the purchaser, while the trading-as name was the customer’s name. The Department deemed this exemption certificate acceptable because the Department was able to independently verify the customer was entitled to claim the exemption.
After reviewing documentation from both the Taxpayer, Customers 1 and 2, and the entity in question, the Department has confirmed that both customers had been acquired by the entity and that Parent Company’s exemption certificate was valid. Accordingly, Customers 1 and 2 were eligible to make purchases from the Taxpayer exempt from the tax.
***** (Customer 3)
Invoice ***** (Invoice 1) and invoice ***** (Invoice 2) from Customer 3 were included as exceptions in the audit as the Taxpayer was not able to provide a valid exemption certificate. Following the conclusion of the audit, the Taxpayer provided an exemption certificate dated December 13, 2013. Invoice 1 is dated August 20, 2013. Invoice 2 is dated March 3, 2014. Only invoices dated on or after December 13, 2013 are eligible for the exemption.
CONCLUSION
Based on this determination, the audit will be returned to the appropriate field audit staff to remove the transactions relating to Customers 1 and 2 as well as Invoice 2 from Customer 3. A revised audit report will be issued to the Taxpayer. Further, because the assessment has been paid in full, a refund for overpayment may be necessary. If so, the Department will issue a refund for overpayment with appropriate interest.
In the future, the Taxpayer should conform the name on its invoices to that of the exemption certificate, or acquire a new exemption certificate. For example, in order for invoices to be eligible for the Parent Company’s exemption, they must indicate the Parent Company as the customer.
The Code of Virginia sections, regulations, 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 response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1900.A