October 3, 2024
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will respond to your letter in which you appeal the denial of interest on the retail sales and use tax refund issued to ***** (the “Taxpayer”) for the period April 2009 through October 2012.
FACTS
The Taxpayer filed a refund claim for an overpayment of sales tax for the period at issue. The Department issued a refund for the tax but did not include interest on the amount refunded because the Taxpayer was unable to show that it had refunded interest to its customer. The Taxpayer filed an application for correction contending it merged with the customer and issuing a refund to the customer is no longer possible. The Taxpayer reasons that, if the merger is sufficient for purposes of refunding the underlying tax, it should also be sufficient for purposes of refunding interest and that a refund to the Taxpayer is fundamentally a refund to the customer.
DETERMINATION
Virginia Code § 58.1-1833 (A) states,
Interest shall be allowed and paid upon the overpayment of any tax administered by the Department, the refund of which is permitted or required under the provisions of this article . . . No interest will be paid on sales taxes refunded to a dealer unless the dealer agrees to pass such interest on to the purchaser.
Similarly, Virginia regulations provide that interest will generally be paid, but again clarifies that no interest will be paid on sales tax refunded to a dealer unless the dealer agrees to pass such interest on to the purchaser. See Title 23 of the Virginia Administrative Code (VAC) 10-210-3040, and Title 23 VAC 10-20-200. Interest represents a fee for the use of money that was properly due to another party. The intent of the restriction on interest paid on refunded sales tax transactions is to ensure that the correct party ultimately receives the interest. In a typical sales tax transaction, it is the purchaser that pays the tax and is entitled to a refund and any applicable interest. The policy behind restricting the interest paid is to ensure that a dealer does not benefit from the interest related to the use of money that was ultimately paid by and refunded to its purchaser.
In Public Document (P.D.) 19-60 (6/11/2019), the Department analyzed both Virginia Code § 58.1-1833 A and Title 23 VAC 10-20-180 A 2 and found that interest can be refunded to a dealer prior to the dealer refunding or crediting the interest to a purchaser. Accordingly, while neither the law nor regulations require that a dealer prepay refund interest to a purchaser to be eligible for a refund of the interest, the refund of interest to such dealer is legally contingent on the payment or credit of the interest to the purchaser.
In this case, the Taxpayer and its customer became the same entity after the transactions at issue occurred. Under the circumstances, a refund to the Taxpayer is also a refund to the customer. Because the Taxpayer is not required to prepay itself interest before the Department is obligated to pay interest on the refund, the auditor will adjust the account and issue interest on the amount of tax previously refunded.
The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public document cited is available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at (804) ***** or via email at *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/4384-C