Tax Type
Retail Sales and Use Tax
Description
Application for refund; Refund to customers
Topic
Taxpayers' Remedies
Date Issued
04-28-1995
April 28, 1995
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This will reply to your letters of June 10, 1994 and October 19, 1994 in which you seek correction of a sales and use tax assessment on behalf of*************(the "Taxpayer") for the period December 1990 through October 1993
FACTS
The Taxpayer provides advertising and related services and products. It was audited and held liable for the tax on purchases of printed material for use in advertising for nonprofit clients. The Taxpayer contests the assessment, asserting that the statutes and regulations are ambiguous and can be interpreted to find that the Taxpayer is not liable for the tax. In addition, the Taxpayer asserts it should receive a refund for sales taxes collected from its customers on transactions not subject to the tax or, in the alternative, it should receive a credit against the use tax assessment in the amount of the erroneously collected sales tax.
DETERMINATION
Use tax on purchases of printed materials
The Taxpayer takes the position that because of the ambiguity in the language of the statutes and regulations relating to advertising businesses, it should not be liable for the tax on materials purchased for use in advertising for nonprofit clients.
Code of Virginia § 58.1-609.6(5) exempts from the sales and use tax "[a]dvertising as defined in § 58.1-602." Code of Virginia §58.1-602 defines the term "advertising" as:
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- the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision. Any person providing advertising as defined herein shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising. (Emphasis added.)
- the planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting and other media, including, without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision. Any person providing advertising as defined herein shall be deemed to be the user or consumer of all tangible personal property purchased for use in such advertising. (Emphasis added.)
There is no exception set out in the statute or in VR 630-10-3 for printed materials purchased for use in advertising for nonprofit organizations. Exemptions from the sales and use tax for nonprofit organizations are generally for tangible personal property for use or consumption by the nonprofit organization. In this case, the printed materials were purchased for use and consumption by the Taxpayer in its advertising business. The customer's exempt status is of no consequence in this instance.
Based on the above, I find that the statute and regulations are not ambiguous as they relate to the Taxpayer's situation. Furthermore, the auditor properly assessed the tax on the cost price of materials purchased by the Taxpayer for use in advertising for nonprofit organizations.
Refund/Credit against the assessment
As noted above, during the audit period, the Taxpayer was not paying tax on its purchases of tangible personal property used in advertising. Instead, the Taxpayer had been erroneously collecting tax from its customers on sales of printing and other services associated with advertising (which are not subject to the sales tax). The Taxpayer did not collect tax on sales to nonprofit organizations, believing they were exempt from the tax. In conducting the audit, the auditor decided to assess use tax only on those purchases associated with "sales" for which the Taxpayer did not charge sales tax to its customers (i.e., sales of printed materials to nonprofit organizations) .
The Taxpayer contends that the department has received more revenue through the erroneous collection of tax on sales than it would have received if the Taxpayer had paid tax on its purchases. The Taxpayer believes it should receive a refund for the amount of taxes erroneously collected from its customers or a credit against the use tax assessment for the amount of sales tax collected.
In this case, the Taxpayer represented itself as a dealer when it charged tax on its sales to customers. Therefore, the refund provisions relating to dealers are applicable. Code of Virginia §58.1-625 requires all dealers to separately state the sales tax to customers and to remit any tax erroneously or illegally collected to the department, unless or until the dealer can show that the tax has been refunded to the purchaser or credited to his account.
VR 630-10-89 explains the refunding of sales tax to dealers and provides that in order for a dealer to receive a refund of taxes erroneously collected, he must either (1 ) show that the tax erroneously collected was paid by him and not passed on to the customer, or (2) show that the tax was collected from the customer as tax and subsequently refunded to the customer.
The Taxpayer has failed to meet the first test set forth above in that the original invoices given to the Taxpayer's customers show a specific amount of sales tax charged to and paid by its customers. Therefore, a refund of the tax can be allowed only if the Taxpayer can show that the erroneously collected taxes were refunded or credited to the accounts of its customers. Because the Taxpayer has not provided such documentation and has indicated it is unwilling to do so, there is no basis for allowing a refund of the taxes erroneously collected and remitted to the department.
Furthermore,, despite your position to the contrary, the Taxpayer has received the benefit of the sales taxes collected. Rather than assess use tax on all purchases, the auditor assessed tax on only those purchases associated with sales for which no sales tax was collected. The auditor purposefully excluded from the exceptions list of the audit report purchases associated with sales for which sales tax was collected. In essence, the auditor gave the Taxpayer credit against the potential use tax assessment for purchases on which a sales tax was collected when "sold" to the customer (despite the fact that the tax was collected erroneously). To allow the Taxpayer to credit the sales tax collected against the use tax assessment for the remaining purchases (items used in advertising for nonprofit organizations) would result in the Taxpayer receiving a double benefit - credit against the potential use tax liability (which the auditor did not assess) and credit against the liability assessed (for which there was no corresponding sales tax collected).
Penalty and interest
The Taxpayer also requests that all interest and penalties be abated. No penalty was assessed for this audit. With regard to interest, the department is bound by the provisions of Code of Virginia § 58.1-1812 which mandates the application of interest to any assessment of tax. Interest cannot be waived unless the associated tax is waived. Because the tax assessed is valid, there is no basis for the waiver of interest. However, due to the time involved in resolving this matter, I will agree to limit the accrual of interest to the date of the assessment.
Offer in Compromise
It is my understanding that during a telephone conversation with a member of my Tax Policy staff you presented an offer on behalf of your client of*********as settlement in full of the Taxpayer's sales and use tax liability for the period at issue. Based on the law and regulations cited above, I find no basis to accept your client's offer.
Accordingly, a balance of************is due. Please have your client submit a check in that amount to the department's Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23282-1880.
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- Sincerely,
Danny M. Payne
Tax Commissioner
- Sincerely,
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Rulings of the Tax Commissioner