Tax Type
Retail Sales and Use Tax
Description
Auctions; Livestock auction sales.
Topic
Taxability of Persons and Transactions
Date Issued
12-02-1997
December 2, 1997
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear**************
This is in reply to your letter in which you seek correction of a sales and use tax assessment issued to******** (the Taxpayer) for the period January 1994 through December 1996.
FACTS
The Taxpayer operates a livestock auction. As a result of the department's audit, an assessment was made for untaxed sales. The Taxpayer takes exception to the following issues: sales in which exemption certificates were obtained, projection of the sample, tax assessed to coggins tests, and sales in which the tax has been paid. Also under protest is the assessed penalty. Each of these issues will be addressed separately below.
DETERMINATION
Exemption certificates: In Virginia, all sales, leases and rentals of tangible personal property are subject to the tax unless the contrary is established. Title 23 of the Virginia Administrative Code (VAC) 10-210-280 explains that the burden of proving that the tax does not apply rests with a 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. A certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable.
The regulation further provides that "[a]n exemption certificate cannot be used to make a tax free purchase of any item of tangible personal property not covered by the exact wording of the certificate." Therefore, the seller must use reasonable care and judgement in selling tangible personal property exclusive of the tax, even when an exemption certificate from the purchaser is in his file. Furthermore, certificates of exemption obtained during or after an audit situation will be accepted only if the department can confirm that the customer's use of the certificate was valid and proper for the specific transaction.
The Taxpayer provided the department with seven exemption certificates with respect to sales held in the audit. Based upon the information provided, I will agree to remove all the tax from the exceptions list provided by the Taxpayer with the exception of five items. These remaining contested items will continue to be taxable based on the following: Item 2 on Exceptions Schedule 1 was incorrectly filed by a farmer using an Out-Of-State dealer or broker resale exemption form ST-14A; no exemption certificate was provided for item 4; and the resale exemption certificate for item 6 is incomplete on its face as the customer did not have a valid registration number. Lastly, two sales listed as "one time sales" will remain taxable as there is no documentation to show that these sales qualify for the occasional sales exemption provided under 23 VAC 10-210-140(B).
Sample: The Taxpayer maintains that sales made during the sample period which were assessed and used to extrapolate an assessment for the entire audit period have been duplicated in the assessment.
In this case, the auditor used a one year sample to identify sales made during the audit period. The auditor found recurring errors in which the Taxpayer failed to collect the tax on sales that were clearly taxable. The auditor determined an error factor for the representative sample period selected. This error factor was extrapolated over gross sales for the audit period.
I cannot agree with the Taxpayer's contention that items have been duplicated in the assessment. The auditor separated the assessment into four contested categories and one uncontested category. A review of the audit reveals that the invoices are only listed once in each category. As such, there is no duplication of items in the assessment. Further, while the tax on the transactions in the uncontested category may have been paid by the customer subsequent to the audit, there are likely similar transactions outside the sample period on which the Virginia tax has not been paid. Therefore, these transactions are included in calculation of the error factor and extrapolated over the audit period. To remove the items in question from the sample base would skew the sample and nullify the validity of the sample. I would note that the Taxpayer was advised by the auditor to apply the tax paid by the customer on these transactions against the audit liability.
Coggins Test: It is my understanding that a coggins test is required by the state for any horse brought to a sale, with the exception of those horses sold for slaughter. The test is performed by a veterinarian. In this case, the Taxpayer bills the purchaser a separate charge for the test in addition to the sales price of the horse. The owner is charged for the test if the horse is not sold. The Taxpayer remits the amount collected to the veterinarian who performs the coggins test.
The Taxpayer maintains that it handles the billing for the coggins test as an administrative convenience to the veterinarian and not as a part of the sale of the horse. The Taxpayer further maintains that if the veterinarian were to directly bill for the coggins test there would be no sales tax charged on the service performed.
As provided in 23 VAC 10-210-140 "[A]uctioneers, agents or factors selling tangible personal property must collect the sales tax on the gross sales price of each taxable sale...." Code of Virginia § 58.1-602 defines "sales price" to be... the total amount for which tangible personal property or services are sold... without 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. (Emphasis added).
As provided above, the Taxpayer is required to collect the tax on the gross sales price of tangible personal property sold. The charge for the coggins test is considered part of the sales price as defined by the statute and, therefore, subject to the tax. The Taxpayer is billing the purchaser for a service in connection with the sale of a horse. Based on the above, the auditor properly assessed the tax.
Sales tax collected: The Taxpayer contests two issues in which the sales tax was collected. Based on the information provided, I will remove the tax assessed with respect to the purchases of tangible personal property.
Penalty: It is my understanding that after the auditor has made the necessary adjustments, the Taxpayer's compliance ratio will meet or exceed the 85% level needed to avoid the application of penalty. Accordingly, the penalty will be removed from the assessment.
Summary: The audit will be returned to the**** District Office for revisions in accordance with this determination. The Taxpayer will receive a revised bill with updated interest. This bill should be paid within 30 days to avoid the accrual of additional interest.
If you have any questions concerning this determination, please contact ****** in the Office of Tax Policy at ****** .
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13020T
Rulings of the Tax Commissioner