Tax Type
Retail Sales and Use Tax
Description
Telephone orders; Third party gifts
Topic
Exemptions
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
09-13-1991
September 13, 1991
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*****************
This will reply to your letter of February 28, 1991 in which you seek correction of sales and use tax assessments for ****************("the Taxpayer").
FACTS
The Taxpayer is engaged in the processing and sale of food products. An audit of the Taxpayer for the period August, 1987 through July, 1990 produced assessments for various untaxed purchases and sales, including sales of gifts made pursuant to telephone orders. Such orders were typically placed by out-of-state residents who directed the Taxpayer to mail the gifts to other out-of-state residents or to Virginia residents.
The Taxpayer contests the assessments, contending that the transactions represented exempt sales in interstate commerce. In addition, the Taxpayer requests waiver of the audit penalty.
DETERMINATION
I cannot agree that the contested sales held taxable in the present audit represented sales in interstate commerce. The validity of the department's long-standing policy in this area, expressed in Virginia Regulation (VR) 630-10-44.1, was upheld in a February 23, 1991 Opinion of the Attorney General (copy enclosed). Moreover, the identical types of transactions were held taxable in the department's prior audit of the Taxpayer for the period May, 1984 through March, 1987 and subsequently addressed by the department.
Pursuant to the Taxpayer's protest of the assessments produced by the prior audit, the department clarified the application of the sales and use tax to gift sales for delivery outside the state of Virginia. The Taxpayer was advised by the department on several occasions that the tax applied to telephone orders placed by out-of-state residents who directed the Taxpayer to mail the gifts to other out-of-state residents or to Virginia residents. See P.D. 90-38 (3/20/90), copy enclosed.
I advised the Taxpayer in a January 20, 1988 letter that it would be expected to begin collecting the tax on such transactions effective February 1, 1988 if it was not already doing so. Further, my May 27, 1988 letter advised that the department fully expected the Taxpayer to begin collecting and remitting the tax on these transactions and that the Taxpayer would be assessed by the department for such transactions in the event that it was audited in the future. Nonetheless, the Taxpayer continued to neglect to collect the tax on such transactions. As such, the transactions in question were properly held taxable and I find no basis to remove them from the instant audit.
Regarding the penalty assessment, the Taxpayer's sales tax compliance ratio of 70% and use tax compliance ratio of 0% are not deemed acceptable for this fifth generation audit. Moreover, the Taxpayer has not demonstrated any exceptional mitigating circumstances to warrant waiver of the penalty. Accordingly, the penalty was properly assessed in this case.
Based on all of the foregoing, I find no basis for correction of the assessments. Updated assessments will be sent to the Taxpayer as soon as practicable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner