Tax Type
Retail Sales and Use Tax
Description
Erroneously collected tax
Topic
Collection of Tax
Taxability of Persons and Transactions
Date Issued
03-23-1989
March 23, 1989
Re: §58.1-1821 Application: Sales and Use Tax
Dear****************
This will reply to your letter dated December 15, 1988, in which you submitted an application for correction of assessment in the above referenced case for the period November 1985, through July 1988.
FACTS
*********("The Taxpayer") is an electrical general contractor doing business in the Commonwealth. This is a second generation audit and the instant assessment stems from the Taxpayer's failure to remit sales tax collected from customers.
The Taxpayer, as a using and consuming contractor, properly paid the tax on purchases or tangible personal property in accord with §58.1-610 of the Code of Virginia. However, to recoup costs of goods purchased, the Taxpayer charged customers tax on marked-up sales but did not remit such tax collected to the Commonwealth. The department only assessed the tax on the difference between the tax paid on materials tax and that charged to customers. The Taxpayer protests the assessment of the tax and the methods used in calculating the assessment.
DETERMINATION
§58.1-625 or the Code of Virginia states in pertinent part that:
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- Any dealer collecting the sales or use tax on transactions exempt or not taxable under this chapter shall transmit to the Tax Commissioner such erroneously or illegally collected tax unless or until he can affirmatively show that the tax has since been refunded to the purchaser or credited to his account. (Emphasis added).
Furthermore, §630-10-27(A) of the Virginia Retail Sales and Use Tax Regulations states that "[a] contractor, whether he be a prime contractor or subcontractor, does not pass the sales tax or use tax on to anyone else as a tax. He [the contractor] will take the amount of the tax into consideration in submitting bids. " (Emphasis added) .
In this case, the Taxpayer sought to recoup from its customers the tax it had paid on materials for use in its contracts. This was done by adding a 4 1/2% sales tax to its contract prices, but resulted in the Taxpayer collecting more tax from its customers than it actually paid on the purchase of materials.
Based upon Virginia Retail Sales and Use Tax Regulation §630-10-27(A), the Taxpayer erroneously collected sales tax from its customers. However, the department's assessment reflects only the difference between the tax collected from customers and the amount of tax paid at the time materials were purchased by the Taxpayer.
Based upon the foregoing, the department properly assessed the Taxpayer for tax erroneously collected from its customers; however, the department's Technical Services Section will contact the Taxpayer to review the information and methods used in calculating the assessment. Adjustments will be made to the audit if warranted as a result or this review.
For the future, the Taxpayer should take the tax paid on materials into account when submitting bids or pricing contracts. The Taxpayer should not pass on the tax directly to its customers as it did during the current audit period.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner