Tax Type
Retail Sales and Use Tax
Description
"First use" defined; Items first shipped to Virginia for use in other states
Topic
Taxability of Persons and Transactions
Date Issued
10-15-1985
October 15, 1985
Re: Section 58.1-1821 Application/Sales & Use Tax
Dear ****
This will reply to your letter of Nay 9, 1985 requesting correction of an assessment in the above referenced case for the audit period May, 1981 through October, 1984
Facts
***** (Taxpayer) is a manufacturer, wholesaler and retailer of soft drink products and related equipment. Pursuant to the department's audit, Taxpayer was held liable for its failure to remit sales tax on certain sales, and for its failure to remit use tax on certain purchases for which no sales tax was paid.
Taxpayer contends that the audit assessment erroneously held subject to use tax all of its purchases of visual coolers which were shipped into Virginia for distribution both within and outside of Virginia Specifically, Taxpayer claims that only those coolers which were distributed in Virginia should be subject to the Virginia sales and use tax. Therefore, Taxpayer contends that those coolers shipped into Virginia for distribution outside the state should not be held subject to Virginia sales and use tax.
Determination
Section 63O-10-109(A) of the Virginia Retail Sales and Use Tax Regulations provides that "the use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased."
The above cited regulation section establishes the principle that the use tax is a moment of transaction tax, i.e., tax liability is incurred at the moment of first use in Virginia. In the present case, Taxpayer purchased out of state and brought into Virginia a total of approximately 498 vending machines for distribution in Virginia, Maryland, and the District of Columbia. Taxpayer states that the only events which take place in Virginia are removal of packaging materials and general clean up of the machines before they are placed into service.
Section 58.1-6O4 of the Virginia Code imposes a tax upon "the use or consumption of tangible personal property in this state." "Use" is then defined in Section 58.1- 6O2(20) of the Code as; "the exercise of any right or power over tangible personal property incident to the ownership thereof." Therefore, upon taking possession of the machines in Virginia, and exercising dominion and control over them, Taxpayer became liable to Virginia for the use tax, notwithstanding their subsequent shipment out of state.
Taxpayer further disputes the department's percentage calculation of nonrental machines to total machines in use which was applied to its purchases of all vending machines and repair parts, as well as the application of such percentage to vending equipment used outside Virginia, in deriving the taxable measure. In support of its position, taxpayer points; to its long standing practice of declaring the tax on a fixed percentage amount (i.e 12%) of the purchase price of all vending related products. It is our understanding however, that the adjusted percentage calculation was supported by the taxpayer's records, and the application of the revised percentage to the total machines purchased was mandated by taxpayer's taking possession and making first use of all the machines in Virginia. Moreover, we find no evidence that the department indicated its approval of or acquiescence in the percentage calculation actually used by Taxpayer.
Therefore, in the absence of any showing by the Taxpayer of evidence which would specifically refute the percentage calculation used in the audit, and its application to the total of machines purchased by Taxpayer, I find no basis to adjust the audit assessment of this issue.
Taxpayer further contests the test period agreed to in the audit due to the aging of the original test period, and the difficulty it encountered in producing the proper supportive documentation. Taxpayer requests that a more recent test period be used or that the original test period be weighted to effect only the earlier years and not the entire audit period. However, Taxpayer has not provided any evidence which would show that the test period agreed to at the time of the audit was unrepresentative of its actual sales activity over the entire audit period. In the absence of such evidence, I find no basis to change the test period agreed to at the time of the audit.
Lastly, Section 58.1-635 of the Code provides in pertinent part, whenever "any dealer fails to make any return and pay the full amount of the tax required by this chapter, there shall be imposed... a specific penalty to be added to the tax in the amount of five percent. . (per month), not to exceed twenty-five percent in the aggregate." Furthermore, the section provides, "If-such failure is due to providential or other good cause shown to the satisfaction of the Tax Commissioner, such return may be accepted exclusive of penalties.'
Based on all of the foregoing I find no basis for the abatement of the tax or Interest which have been assessed herein. However, upon receipt of all of such tax and interest, within 30 days of the date of this letter, I agree to abate all penalties; which have been assessed Such payment should be sent to the Department of Taxation, Technical Services Section, P. O. Box 6-L, Richmond, Virginia 23282
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner