Tax Type
Retail Sales and Use Tax
Description
Equipment purchased or leased by a franchisee
Topic
Appropriateness of Audit Methodology
Date Issued
07-07-1982
July 7, 1982
Dear******************
This will reply to your letter of May 21, 1982 in which you petition for correction of use tax assessed against ********as a result of a recent audit.
FACTS
*********has contracted with ********** a franchiser of sandwich shops called ********** to own and operate two stores in Virginia. As part of the agreement the equipment for each store must be purchased or leased by the franchisee from *********** or other sources designated by ******** is located in Connecticut. It is not currently registered for the collection of Virginia sales tax,********** deposited the money to purchase equipment with **********in advance of the delivery of the equipment. *********suppliers shipped the equipment direct to **********. The ownership of the equipment rests with *********. An audit failed to disclose proof that the Virginia sales or use tax had been paid on the purchase of equipment being used by *************.
DETERMINATION
§ 58-441.5 of the Code of Virginia imposes a tax upon the use or consumption of tangible personal property in Virginia. This provision applies to purchases on which no sales tax is paid to the seller. As a purchaser of tangible personal property used in a facility located in Virginia, you are liable for either payment of the Virginia tax to your suppliers at the time the property is purchased or remittance of the use tax on the property directly to the Department of Taxation.
In this situation ********* is not registered to collect Virginia tax, and no tax is listed on the invoices to you for the equipment. Further, § 58-441.18 of the Code of Virginia requires the dealer to separately state the amount of the sales tax and add it to the sales price or charge. Since this clearly was not done the department must hold that no tax was paid. As the purchaser of the equipment, you are liable for payment of the use tax on all tangible personal property purchased. Your contention that your credit is not bound by the purchasing agreement is not relevant. You are the purchaser and user of the property and as such are liable for the use tax.
The fact that ********* is or is not an out of state dealer is not material to your tax liability. The court has ruled that where a transaction is subject to the sales tax under § 58-441.4 of the Code of Virginia but the vendor fails to collect it, the consumer becomes liable for an equivalent amount of use tax under § 58-441.5 (Lee Bros. v. State Tax Commissioner, Circuit Court of Henry County, 1973).
From time to time the department is informed of dealers doing business in Virginia who are not registered to collect the Virginia sales and use tax. We appreciate you informing us of a possible violation.
Based upon the foregoing, I find no basis for granting relief from the use tax assessed. If you desire a hearing on this application, please advise us within thirty days, otherwise this determination letter will be considered final.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner