Tax Type
Employer Income Tax Withholding
Retail Sales and Use Tax
Description
Supplies shipped into Virginia; Withholding requirements; Out-of-state contractor
Topic
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
03-10-1994
March 10, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear******************
This will reply to your letter of August 9, 1993 in which you seek correction of a retail sales and use tax assessment and a withholding tax assessment for ************** (the "Taxpayer").
FACTS
The Taxpayer is a plumbing contractor located in another state. The Taxpayer has performed plumbing contracts in Virginia, and has had items it purchased from suppliers shipped into Virginia for use in those contracts.
You are contesting the assessment of use tax on the Taxpayer's purchases of tangible personal property shipped into Virginia, claiming the Taxpayer paid taxes on its purchases to its home state. You also protest the assessment of withholding taxes for employees doing work in Virginia, maintaining that withholding taxes were paid to their state of residence because you were unaware that taxes were required to be paid to Virginia.
In a previous ruling, it was determined that the Taxpayer, as a contractor, was liable for use tax on its purchases. It was also held that if the Taxpayer could document its payment of sales tax on its purchases to another state, the department would allow the appropriate credit. Finally, it was determined that the auditor properly assessed tax, penalty and interest because of the Taxpayer's failure to withhold Virginia income tax from the employees who performed contracting services in Virginia. See P.D. 93-172 (7/29/93).
You request reconsideration of the prior ruling and have submitted additional information to support the Taxpayer's position.
DETERMINATION
Use tax: After reviewing the audit report and the information provided, I find no reason to change the department's position. As outlined in the department's previous response, the application of the law and regulations to the Taxpayer's situation is clear.
In an application for correction of an erroneous assessment under Va. Code §58.1-1821, the taxpayer has the burden of proving that the assessment is erroneous by showing what the correct assessment should be. This burden cannot be met if the taxpayer does not provide all the necessary documentation and supporting detail. You have submitted copies of sales and use tax returns filed with another state as proof that the sales tax was paid on the purchases at issue. However, there are no invoices accompanying the returns that would allow the department to verify that the amounts reported on the returns are attributable to the purchases at issue. While you state that the invoices were matched to the returns during the audit, the auditor maintains that the necessary information was not provided. In addition, there is no evidence (e.g., a cancelled check) that the tax was actually remitted.
If the Taxpayer can match the invoices for the purchases at issue to the sales and use tax returns filed and prove that sales tax was paid on the purchases, the department will compute the appropriate credit against the use tax assessment.
However, it should be noted that under Virginia Regulation (VR) 630-10-29, the credit for taxes paid to other states does not apply to tax erroneously charged or incorrectly paid to another state. In this case, no credit will be allowed for materials purchased outside Virginia and shipped directly to Virginia job sites, as there was no taxable use of the property by the Taxpayer in its home state. Absent some taxable use, generally there would be no tax liability to the home state or the state in which the seller of the property was located.
Withholding tax: The application of the law and regulations in this case is clear. The Taxpayer was required to withhold Virginia income tax from the wages of its employees who performed contracting services
in Virginia. Because it failed to do so, the auditor properly assessed tax, penalty and interest.
However, because this was the initial audit of the Taxpayer and the Taxpayer has corrected its withholding procedures to comply with Virginia law, I may be willing to waive the penalty for failure to withhold taxes for the periods beginning February 1987 and ending December 1992, provided that the Taxpayer pays the applicable withholding tax and interest within 30 days of the date of this letter.
If the department does not receive the requested information and payment from the Taxpayer within 30 days, collection action will resume.
Sincerely,
Danny M. Payne
Acting Tax Commissioner
OTP/7250F
Rulings of the Tax Commissioner