Tax Type
Retail Sales and Use Tax
Description
Motor vehicle repair; Shop supplies charge; Warranty repairs; Purchases for dealer's use or consumption
Topic
Collection of Tax
Exemptions
Taxability of Persons and Transactions
Date Issued
12-23-1987
December 23, 1987
Re: §58.1-1821 Application/Sales and Use Tax
Dear ***********************
This will reply to your letter of November 12, 1985, in which you submit an application for correction of sales and use tax assessed to **************** as the result of an audit. I apologize for the delay in responding to your letter.
FACTS
************** ("Dealer") is engaged in the sale, servicing, and repair of motor vehicles. A recent audit of the dealer produced an assessment for its failure to collect the sales tax on certain charges made to customers, including shop supply charges and deductible payments on warranty repairs. In addition, the dealer was assessed tax on sales for which it could not produce certificates of exemption and upon purchases for its own use or consumption.
The dealer contests the imposition of tax upon its shop supply charges, contending that such charges represent charges for labor in connection with service and repair work. The charges are computed by multiplying each customer's repair labor charge, up to a maximum charge of $8 and are intended to help the dealer recoup its expenses for miscellaneous shop supplies. In addition, the dealer does not agree with the imposition of tax on deductible payments made by customers on warranty work that included the provision of parts.
With respect to untaxed purchases made for the dealer's use or consumption, it is asserted that the correct point of taxation is with the dealer's suppliers. otherwise, the dealer contends
that both the purchaser and the seller could potentially be audited and assessed tax on the same transactions.
DETERMINATION
I will address the policy issues raised by the dealer on a separate basis below:
Shop Supply Charges
The department will remove all miscellaneous shop supply charges from its audit; however, any use tax that may have been assessed on the purchase of the shop supplies will remain in the audit. For the future, the taxpayer should remit the tax on all purchases of shop supplies, but will not be required to collect the sales tax on miscellaneous shop supply charges made to customers.
Deductible Payments on Warranty Repairs
While the dealer does not specifically contest this issue at this time, the inclusion of deductible payments on warranty repairs in the department's audit has been questioned by the dealer.
Section 630-10-62.1 of the Virginia Retail Sales and Use Tax Regulations provides that payments for maintenance contracts and warranty plans which provide for the furnishing or replacement of parts represent the taxable sale of tangible personal property. However, the regulation does not require the application of the tax to deductible payments made under such plans, and I find basis in this instance for the relief of the tax assessed on such payments.
Exemption Certificates
Virginia Code Section 58.1-623 provides that "[a]ll sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of 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."
As advised by the department's auditors, transactions for which the dealer can produce a valid certificate of exemption from a customer will be removed from the department's audit. However, tax assessed on transactions for which the dealer cannot produce exemption certificates will remain due and payable until such time as the certificates are actually produced.
Purchases for Dealer's Use or Consumption
Virginia Code Section 58.1-604 imposes the tax upon "the use or consumption of tangible personal property in this State." As noted by the Virginia Supreme Court in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E.2d 413 (1980), the use tax is applicable both when "property was purchased outside Virginia and would have been subject to the sales tax if it had been purchased within this State" and when a "purchase was made in Virginia but the sales tax was not paid."
Based upon the foregoing, the tax was properly assessed to the dealer on purchases from instate dealers and out-of-state dealers to whom the sales tax was not paid. The assessment of tax to both the seller and the purchaser would occur only in the event that the purchaser did not furnish the seller with a certificate of exemption. When a supplier accepts in good faith an exemption certificate that is valid on its face, he is relieved of his duty to collect the sales tax even though the purchaser may not actually enjoy an exemption on the item purchased.
While the assessment of tax on instate purchases is valid in this case, the department will revise its audit if the dealer can present evidence that any of its suppliers have paid the sales tax on the same transactions.
Other Audit Issues
The department's Technical Services Section and ***** District Office will review with the dealer the remaining audit issues set forth in the dealer's appeal. These include the questions posed concerning the dealer's handling of previous overpayments of the tax and the duplication of various audit entries. If this review does not resolve the questions posed in the appeal, the dealer may resubmit its appeal with respect to these issues.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner