Tax Type
Retail Sales and Use Tax
Description
Processing fees; Tax collected and not remitted; Certificates of exemption
Topic
Collection of Delinquent Tax
Returns/Payments/Records
Taxability of Persons and Transactions
Date Issued
08-19-1996
August 19, 1996
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear*********
This will reply to your letter of February 27, 1996, in which you provide additional information concerning your previous application for correction of a sales and use tax assessment issued to *******(the Taxpayer), for the period September 1991 through August 1994.
FACTS
The Taxpayer sells and repairs on and off-road vehicles, trailers, power equipment, shop parts, and accessories. An audit of the Taxpayer's records resulted in an assessment for untaxed sales, sales tax collected and not remitted to the department, and untaxed purchases. The Taxpayer seeks an adjustment to the assessment for untaxed sales in which no certificates of exemption were available. The Taxpayer has provided the department with copies of certificates and other documentation to support the exempt sales. The tax was also assessed on processing fees charged by the Taxpayer when it sells a vehicle. The processing fee is a service charge for preparing registrations and related documents on behalf of the Taxpayer's customers. The Taxpayer did not charge sales tax on the fee when taxable sales of vehicles were made and suggests that the fee is an exempt labor charge.
An analysis of the Taxpayer's general ledger account balances and sales tax returns resulted in the assessment for tax that was collected and not remitted to the department. The Taxpayer maintains that this portion of the assessment was overstated because the auditor failed to remove sales made for resale from the totals used to compute the tax. The Taxpayer takes exception to the inclusion of its purchases of snack foods and a videocassette recorder in the audit. It maintains that these purchases were made for resale and are exempt from use tax.
DETERMINATION
Exemption Certificates
The department's policy with respect to exemption certificates is discussed in Virginia Regulation (VR) 630-10-20 (copy enclosed). The regulation states in paragraph A that "All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law." This same section notes that when a certificate is inconsistent, incomplete, invalid, or infirm on its face, it is never acceptable. VR 630-10-20(B) provides that "[r]easonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates."
The certificates furnished by the Taxpayer have been forwarded to the*** District Office for review and the audit will be adjusted accordingly. I must caution the Taxpayer that only sales covered by the exact wording of those certificates which meet the criteria discussed above will be removed from the audit.
Tax Collected and Not Remitted
VR 630-10-30 (copy enclosed) provides that "Every person who is liable for collection of sales tax and/or remittance of use tax is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability." The auditor based the assessment on discrepancies found between taxable sales from the Taxpayer's general ledger balances and taxable sales reported on its sales tax returns. You have calculated an amount that represents sales made for resale during the audit period and you maintain that the audit liability should be reduced by the amount of exempt sales.
Code of Virginia § 58.1-205 (copy enclosed) provides that tax assessments issued by the department are deemed prima facie correct. The burden of proving that an assessment is erroneous is on the taxpayer. If the Taxpayer can provide documentation of the exempt sales, and its exempt and taxable sales can be reconciled to gross sales, the audit will be adjusted to reflect the correct taxable sales measure.
Processing Fees
The department's policy with respect to services provided in connection with the sale of tangible personal property is longstanding. The policy is based on the definition of "sales price" found in Code of Virginia § 58.1-602 (copy enclosed). "Sales price" is defined as "... the total amount for which tangible personal property or services are sold, including any services that are a part of the sale ... and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer, without any deduction therefrom on account of the cost of the property sold, the cost of materials used, labor or service costs, losses or any other expenses whatsoever."
The Taxpayer suggests that the processing fees are exempt labor charges but does not dispute the fact that the charges are made in connection with sales of tangible personal property. Based on the definition of "sales price" above, labor or service charges are taxable unless specifically exempt under law. Because the processing fees are charged in connection with sales of tangible personal property, the charges are properly included in the "sales price" of the vehicles when computing the tax.
Purchases for Resale
"Retail sale" is defined in Code of Virginia § 58.1-602 as "... a sale to any person for any purpose other than for resale..." If the Taxpayer can provide documentation that the snack items and the videocassette recorder were resold, and no use was made by the Taxpayer of these items, I will agree to remove them from the audit. Documentation may consist of sales invoices showing that the items were sold or accounting records showing that the items were charged to an inventory account or reported on the Taxpayer's sales and use tax returns.
The Taxpayer should contact the department's ********* District Office at ****within sixty days to set up an appointment to review the documentation needed to resolve the issues raised in your appeal. The audit assessment will be adjusted based on our review of the exemption certificates and any documentation furnished by you. Interest will be updated on the outstanding balance through the date of your letter of February 27, 1996. You may wish to pay all or part of the balance of*********at this time by sending payment to*********in the Office of Tax Policy, P. O. Box 1880, Richmond, Virginia 23218-1880. Please contact ********at ******* if you have any questions.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9532S
Rulings of the Tax Commissioner