Tax Type
Retail Sales and Use Tax
Description
Automobile dealer service contracts; Statute of limitations
Topic
Statute of Limitations
Taxability of Persons and Transactions
Date Issued
02-23-1989
February 23, 1989
Re: §58.1-1821 Application/ Sales and Use Tax
Dear***************
This will reply to your letter of November 8, 1988 seeking correction of a retail sales and use tax assessment issued to**********(taxpayer) for periods between January, 1985 and December, 1987.
FACTS
In connection with its business as a new and used car dealer, the taxpayer was recently audited and held liable for its untaxed sales of motor vehicle service contracts to customers. You contend that such service contracts constitute contracts of motor vehicle insurance under Virginia Code §38.2-124, and are therefore exempt from sales and use tax under §58.1-608(2) of the Virginia Code. Therefore, you seek correction of the assessment on all of these sales made by the taxpayer.
You contend further that since the assessment in this case was dated August 10, 1988, based on the three year statute of limitations for assessments set forth in Virginia Code §58.1-1825, that the assessment is invalid for periods between January and June, 1985.
In addition, you state that the audit should be corrected based on certain mathematical errors made by the department's auditor.
DETERMINATION
Virginia Code §58.1-608(2) provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made nor services rendered by repairmen for which a separate charge is made."
As applied to extended warranty plans or motor vehicle service contracts such as those sold by the taxpayer in this case, Virginia Retail Sales and Use Tax Regulation (VR) 630-10-62.1(F) provides generally that "[t]he tax applies to charges for extended warranty plans which provide for the provision of repair parts and labor." However, this section continues, "[e]xtended warranty plans issued by an insurance company regulated by the Bureau of Insurance of the State Corporation Commission are insurance transactions and are not subject to the tax." (Emphasis added)
In addition, Virginia Code §38.2-200(B) provides that "[a]ll licenses granting the authority to transact the business of insurance in this Commonwealth shall be granted and issued by the [State Corporation] Commission." Furthermore, §38.2-135 of the Virginia Code provides that "[n]o company shall write any class of insurance unless it has a current annual license from the [State Corporation] Commission to do so."
The taxpayer in this case has not shown that for any portion of the audit period that it was licensed or regulated by the Bureau of Insurance of the State Corporation Commission as an insurance company. Therefore, I cannot agree that sales of such contracts represented exempt sales of insurance under Virginia Code §58.1-608(2).
Furthermore, under Virginia Code §58.1-220, the department and a taxpayer may agree to extend the period of an assessment of taxes. The department's records indicate that the taxpayer agreed to such an extension of the period of limitations by waivers signed on February 16 and July 15, 1988. Therefore, I find no basis for correction of the assessment on the grounds of expiration of the statute of limitations.
In addition, it is my understanding that certain errors were initially made concerning the monthly computation of untaxed sales of motor vehicle service contracts by the taxpayer. However, according to the department's auditor and as shown by the working papers, such errors were corrected by the time the assessment was issued.
Based on all of the foregoing, I find no basis for correction of the assessment, which is now due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner