Tax Type
Retail Sales and Use Tax
Description
Credit for tax paid to another state; Use tax on construction materials
Topic
Collection of Tax
Taxability of Persons and Transactions
Date Issued
03-20-1990
March 20, 1990
Re: §58.1-1821 Application/ Sales and Use Tax
Dear ****
This will reply to your letter dated October 23, 1989 in which you seek correction of the assessment issued in the above referenced case for the period January 1977 through December 1979.
FACTS
***** ("Taxpayer"), was engaged during the audit period, in construction operations in both Virginia and Maryland. The taxpayer, however, has since liquidated and is no longer an operating corporation. A sales tax audit for the period January 1977 through December 1979 disclosed use taxes due from various purchases from Virginia and out-of-state dealers. The taxpayer received a copy of the audit report with a June 5, 1980 letter indicating that the assessment would be mailed shortly. The taxpayer provides that no such assessment was ever received until a May 26, 1986 updated assessment was sent by the collections unit. The taxpayer protests the entire assessment based on the following:
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- 1. Taxes were not assessed within time limitations.
2. A number of purchases were subject to Virginia sales tax, rather than use tax.
3. The taxpayer provides that although Virginia taxes were collected for purchases of materials used in Virginia, that vendors improperly remitted these taxes to Maryland. The taxpayer believes that taxes paid for purchases of materials outside Virginia for use in Virginia should be allowed as a credit against Virginia use taxes.
- 1. Taxes were not assessed within time limitations.
DETERMINATION
Statute of Limitations
Virginia Code §58.1-1820 states that an assessment "shall be deemed to be made when a written notice of assessment is ... mailed to the taxpayer at his last known address." A copy of the audit report and a certified letter notifying the taxpayer of its liability due were mailed to the taxpayer at ******* on June 5, 1980. On June 26, 1980 a Notice of Assessment was mailed to the same address.
Furthermore, the taxpayer was notified at the same address on October 16, 1980 that collection action was about to begin. On January 9, 1981, the legal unit of the collections office notified the taxpayer that he had fifteen days to respond before legal action would begin. Finally, a judgment was recorded October 15, 1981 in the lien docket of the Circuit Court of Richmond, Division 1, that the plaintiff (Virginia Department of Taxation) recover and have judgment against the defendant (Taxpayer) since the motion for judgment having been served, was not answered. The evidence supports that the assessment was properly made within the provisions of §58.1-104.
Noncollection by Suppliers
Virginia Sales and Use Tax Regulation 630-10-27(A) provides, "[i]f a supplier of a contractor doing work in Virginia does not collect the Virginia tax from the contractor, the contractor will be liable for the use tax on his purchases from the supplier". In addition, Sales and Use Tax Regulation §630-10-109, which was validated by the Va. Sup. Ct. in Commonwealth v. Miller-Morton, 220 Va. 852, 263 S.E. 2d 413 (1980), states that "[t]he use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales tax is not paid at the time the property is purchased." Furthermore, in United States v. Forst, 442 F. Supp. 920 (W.D. Va. 1977), affd. 569 F 2d. 413 (4th Cir. 1978), the federal courts held that even though the seller is legally obligated to collect the tax, "the legal incidence of the Virginia ... tax ... is on the purchaser."
Based upon the foregoing authorities, the department may properly assess the tax to the taxpayer in this case even though some of its suppliers may have been registered for collection of the Virginia tax.
Credit for Tax Paid to Another State
The taxpayer asserts that it should be granted a credit upon the Virginia sales and use tax for the tax that it erroneously paid to Maryland. Virginia Regulation 630-10-29 provides that "[a]ny person who purchases tangible personal property in another state and who has paid a sales or use tax to such state ..., is granted a credit against the use tax imposed by Virginia on its use within this state for the amount of tax paid in the state of use in the state of purchase." However, this regulation goes on to provide that the "credit does not apply to tax erroneously charged or incorrectly paid to another state. For example, if a person purchases and takes delivery in Virginia of tangible personal property purchased from an out-of-state dealer who incorrectly charges out-of-state tax, no credit is available. The purchaser must apply to the out-of-state seller for refund." (Emphasis added.)
Accordingly, the payment of the other state's sales tax was erroneous in this case since delivery of the tangible personal property purchased occurred in Virginia.
However, if the Taxpayer can provide proper documentation (i.e., invoice or letter from the Maryland supplier) indicating that the Maryland sales tax was paid and the materials were picked up in Maryland by the Taxpayer, then the Department will allow an appropriate credit.
Based on the foregoing, I find no basis for correction of the assessment. However, if the Taxpayer can provide the proper documentation in reference to the Maryland taxes, the assessment will be adjusted accordingly.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner