Tax Type
Retail Sales and Use Tax
Description
Cellular telephone business
Topic
Exemptions
Date Issued
05-04-1988
May 4, 1988
Re: §58.1-1821 Application/Sales and Use Tax
Dear**************
This will reply to your letter of March 9, 1988, in which you submit an application for correction of sales and use tax assessed as the result of a recent audit.
FACTS
A recent audit of ********(Taxpayer) revealed its failure to collect the sales tax on sales to a cellular telephone company (Customer). The taxpayer contests this assessment on the basis that (1) its customer is a public service corporation enjoying an exemption from the sales and use tax; (2) it accepted in good faith an exemption certificate from its customer; and (3) that the inclusion of the customer's purchases in the department's audit sample was nonrepresentative of the audit period as a whole.
DETERMINATION
I will address on a separate basis below the issues raised by the taxpayer:
Public Service Corporations
§58.1-608.10 of the Code of Virginia provides an exemption from the sales and use tax for tangible personal property used by "a public service corporation subject to a state franchise or license tax upon gross receipts" directly in the rendition of its public service.
It is my understanding that the taxpayer's customer in this instance is a radio common carrier. §58.1-2625 of the Code of Virginia specifically exempts radio common carriers from the state license (gross receipts) tax imposed on telephone companies. Inasmuch as the customer is not subject to the gross receipts tax, it does not qualify for the sales and use tax exemption under §58.1-608.10.
Exemption Certificates
§58.1-623 of the Code of Virginia provides that:
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- All sales...are subject to the tax until the contrary is established. The burden of proving that a sale...is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt...
- All sales...are subject to the tax until the contrary is established. The burden of proving that a sale...is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt...
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- Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent, or bad faith exemption certificates. An exemption certificate cannot be used to make a tax-free Purchase of any item of tangible personal property not covered by the exact wording of the certificate. Emphasis added
- Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent, or bad faith exemption certificates. An exemption certificate cannot be used to make a tax-free Purchase of any item of tangible personal property not covered by the exact wording of the certificate. Emphasis added
The taxpayer in this instance accepted a resale exemption certificate from its customer, even though the customer was purchasing fixed assets to be used in its cellular telephone operations and not for resale or lease to others. No evidence has been presented to suggest that the taxpayer also obtained an exemption certificate, Form ST-20, for exempt purchases by public service corporations. Based on these facts and the above cited authorities, I do not find basis for relief of the tax assessed on sales to the customer.
Audit Sample
The taxpayer contends that its transactions with the customer should be excluded from the department's audit sample. Based upon the information presented, I concur that the transactions in question were nonrepresentative of the audit period as a whole. Accordingly, these transactions will be removed from the audit sample and treated separately.
Lastly, I would like to note that the taxpayer may bill its customer for any tax assessed relating to these transactions.
§58.1-625 of the Code of Virginia provides that:
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- The tax...shall be paid by the dealer, but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser...to the dealer until paid and shall be recoverable at law in the same manner as other debts.
- The tax...shall be paid by the dealer, but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser...to the dealer until paid and shall be recoverable at law in the same manner as other debts.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner