December 13, 2024
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 audit assessment issued for the period July 2017 through June 2020.
FACTS
The Taxpayer, a dealer of dental prosthetics and related products to oral surgeons, dentists, and dental laboratories in Virginia, was audited for the period at issue. The Department’s auditor found that the Taxpayer had made untaxed sales of dental devices, prosthetics, and related parts, because the exemption certificates for the associated customers reviewed during the audit were invalid, and sales were not for specific patients. The Taxpayer filed an application for correction contending it accepted an exemption certificate in good faith from one of its customers and claims its sales of dental prosthetics to this customer were appropriately treated as exempt of tax.
DETERMINATION
Medical Equipment Exemption
The sales records listed as audit exceptions did not contain patient-specific information. Virginia Code § 58.1-609.10 10 provides an exemption for durable medical equipment that “(i) can withstand repeated use, (ii) is primarily and customarily used to serve a medical purpose, (iii) generally is not useful to a person in the absence of illness or injury, and (iv) is appropriate for use in the home.”
Title 23 of the Virginia Administrative Code (VAC) 10-210-940 F 5 provides “[t]he exemption in this subsection is available only for items purchased by or on behalf of an individual for his use. In order to be deemed a purchase on behalf of an individual, the item must be specifically purchased for the individual.”
The Department has been consistent in its requirement that patient-specific information must be present on the billing invoices to a customer at the time of sale. In Public Document (P.D.) 00-215 (12/7/2000), the Department explained that tracing durable medical devices to specific patients after the purchase does not meet the requirement that the patient for which the item is obtained be known at the time of purchase.
The Virginia courts have consistently required strict construction of sales and use tax exemptions. Where there is any doubt as to the application of an exemption, the doubt is resolved against the person claiming the exemption. See Commonwealth v. Community Motor Bus Co., Inc., 214 Va. 155 (1973) and Golden Skillet Corp. v. Commonwealth, 214 Va. 276 (1972).
In its application for correction, the Taxpayer states the certificate of exemption they accepted is sufficient to substantiate the claim that the sale of dental prosthetic devices is exempt from Virginia sales and use tax because its customer checked the corresponding box on a Form ST-13, the certificate of exemption for use when purchasing medical-related items, indicating the purchases would be used for specific patients. Further, the Taxpayer submitted email correspondence from its customer stating the purchased implants were for specific patients. These documents, however, fail to show that the customer bought items for specific individuals at the time the orders were placed.
CONCLUSION
Based on the documentation provided and the cited authorities, the documentation submitted by the Taxpayer does not meet the criteria set forth by the durable medical device exemption. Accordingly, the assessment is correct. An updated 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 this letter.
With regard to exemption certificates, Title 23 VAC 10-210-280 B provides that reasonable care and judgment must be exercised by both the purchaser and dealer when ensuring the completeness and correctness of exemption certificates. An exemption certificate may be accepted in good faith when the certificate is submitted as part of the original transaction, it has been filled out completely, when reasonable care is used by both parties to the transaction to ensure correctness, (i.e. there are no obvious errors in the form’s completion), and the tangible personal property sold is covered by the exact wording of the certificate. See P.D. 01-36 (4/11/2001), P.D. 11-8 (1/20/2011), and P.D. 19-50 (5/9/2019). When exemption certificates are not available at the onset of an audit, the Department has held that any certificate obtained during the audit is precluded from being considered accepted in good faith, and closer scrutiny will be applied to information supplied on the certificate. See P.D. 98-29 (2/20/1998), P.D. 01-36 (4/11/2001), P.D. 05-160 (10/7/2005) and P.D. 16-104 (5/25/2016). The Taxpayer may wish to consider reviewing and modifying it sales operations to ensure exemption certificates are accepted in good faith.
The Code of Virginia sections and regulations cited are available online at law.lis.virginia.gov. The public documents cited are 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 and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/3772.Z