Tax Type
Retail Sales and Use Tax
Description
Contractor; Sales and purchases
Topic
Collection of Tax
Property Subject to Tax
Subtractions and Exclusions
Date Issued
01-05-1994
January 5, 1994
Re: §58.1-1821 Application: Sales and Use Tax
Dear ****
This will reply to your letter of July 29, 1992 in which you seek relief for tax, penalty and interest recently assessed as a result of an audit of your client, **** (the "Taxpayer").
FACTS
The Taxpayer is in the refuse disposal service business with locations in Virginia, Maryland and Delaware. The Taxpayer was audited and assessed tax, penalty and interest on various fixed assets, general expense purchases and sales. The Taxpayer is taking exception to the following items being held taxable.
Fixed Assets
Portable Disposal Units - Portable disposal units were purchased from out-of-state suppliers and, according to invoices and bills of lading, were delivered to the Taxpayer's Virginia location. The Taxpayer has obtained letters from its suppliers stating that delivery of such units were not made to Virginia, but were shipped to the Taxpayer's location in Maryland. The Taxpayer is requesting the disposal units be removed from the audit since such units were delivered and used outside Virginia. It is also the Taxpayer's contention that its Virginia location does not have the facilities to off-load the disposal units, therefore, delivery to the Virginia location would not be feasible.
Lightweight Plastic Containers - The Taxpayer also purchased plastic, lightweight containers which were delivered to its Virginia location. Ten percent of such containers were for use in Virginia and the remainder of the containers were delivered for use at the Maryland and Delaware locations. Such containers remained in Virginia for approximately 2 days prior to being shipped out-of state. The Taxpayer feels the containers are for use and consumption outside Virginia, therefore, not subject to Virginia use tax.
Towmotor - The Taxpayer is also taking exception to the application of Virginia use tax to the purchase and delivery of a towmotor. The towmotor was purchased from a Delaware company and the invoice did not specify a "ship to" destination. The signature accepting delivery of the towmotor is that of the manager of the Maryland location. The Taxpayer requests removal of the towmotor from the audit.
Typewriter - As a result of an examination of the Taxpayer's depreciation schedule, the auditor assessed Virginia use tax on the purchase of a typewriter. While the auditor requested documentation of this purchase, the Taxpayer does not have such documentation. The Taxpayer claims, however, the purchase was made by its Delaware office, and therefore, is not taxable in Virginia.
Expense Purchases
Sand - The Taxpayer purchased loads of sand on which no tax was paid from a Virginia supplier. The supplier indicated to the Taxpayer that it operated as a contractor and had paid the sales tax on the sand at the time of purchase. The Taxpayer feels that this alleviates him from paying the tax on the purchase of the sand.
Signs - The Taxpayer also purchased signs on which no sales tax was paid from a Virginia dealer. The Taxpayer states that such signs were for its Maryland and Delaware locations, therefore, the Virginia tax is not applicable. The supplier's invoice only had the Taxpayer's Virginia location listed.
Sample Period - General expense purchases were sampled for a thirteen month period beginning January, 1991 through January, 1992. The Taxpayer states that during this sample period, purchasing practices were changed to centralize purchases to take advantage of lower prices. Administrative supplies were purchased in bulk through out-of-state suppliers and delivered to the Virginia location. The Taxpayer feels that the centralization of its purchasing practices at the Virginia location skews the sample period.
DETERMINATION
The areas at issue will be addressed in the same order as presented in the "Facts" section above.
Fixed Assets
Portable Disposal Unit - Based on the information provided, I will agree to remove these items from this audit. However, in the future, the department will rely on invoices and bills of lading to determine the destination of tangible personal property purchased by the Taxpayer.
Lightweight Plastic Containers - Va. Code §58.1-602 defines "use" as "the exercise of any right or power over tangible personal property incident to the ownership thereof..." This section goes on to define "use tax" as "the tax imposed upon the use, consumption, distribution, and storage as herein defined." Furthermore, Virginia Regulation (VR) 630-10-109 (copy enclosed) addresses "use tax" and states, in part, "the use tax applies to the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased." Therefore, the Taxpayer clearly exercises a right or power consistent with ownership of the containers when it stores the equipment in Virginia. Therefore, I find no reason to remove the containers from the audit.
Towmotor and Typewriter - These items were identified from the Taxpayer's depreciation schedule. Documentation presented in support of the towmotor suggests that delivery was made to the Taxpayer's Maryland location. For this reason, the towmotor will be removed from the audit.
In regard to the typewriter, the Taxpayer presented no documentation to support its claim that the typewriter was delivered to Delaware. Accordingly, I find no basis for removal of the typewriter from the audit.
Expense Purchases
Sand - Based on the information provided, the purchase of the sand by the Taxpayer constitutes a retail sale by a contractor to the final consumer. Virginia Regulation (VR) 630-10-27(B) (copy enclosed) provides that a using or consuming contractor may also be engaged in the business of selling tangible personal property to customers. If so, the contractor becomes a dealer with respect to such sales and is required to collect and remit the retail sales and use tax on such sales. The fact the contractor paid the tax on the sand at the time of purchase does not exempt the retail sale of such sand from the tax. Likewise, it does not exempt the sale from the use tax should the seller fail to collect the sales tax. VR 630-10-109 specifically sets forth the application of the Virginia use tax when the Virginia sales or use tax is not paid at the time the property is purchased. Therefore, I find no basis for the removal of the sand from the audit sample.
Signs - Due to the fact that there is no documentation supporting the Taxpayer's contention that the signs were delivered outside of Virginia, I find no basis for removal of the signs from the audit. The only address listed on the invoice is the Taxpayer's Virginia location.
Sample Period - Sampling is an audit technique of significant value that is widely used in both the public and private sectors. The courts have consistently held that a tax assessment issued by the proper authorities is prima facie correct and valid and that the burden of proof is upon the taxpayer to prove otherwise. As such, a taxpayer must demonstrate that a sample is not representative of the entire audit period, or flawed in some manner as to render the sample invalid.
In the case at hand, the Taxpayer feels that the centralization of their purchasing practices with regard to office supplies significantly skews the purchases sample against the Taxpayer. In other words, the Taxpayer feels that administrative supplies for use at their Maryland and Delaware locations should be removed from the audit sample. This office has been advised that the only administrative offices maintained by the Taxpayer are located in Virginia, thus rendering administrative supply use in Maryland and Delaware to be minimal. However, if the Taxpayer can provide documentation showing those administrative supplies which are shipped to their out of state locations, I will allow those items to be removed from the sample.
The audit will be adjusted as set forth above. Once the audit has been revised, a refund will be issued. If you should have any questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner