Did post-audit resale certificates prove that an Internet retailer's Virginia sales were exempt?

Subject

Internet sales needed valid, transaction-matched exemption certificates

Plain-English summary

Virginia removed one Internet sale supported by a reviewed resale certificate but kept two others in the audit. A Puerto Rico certificate was not valid until after the table sale occurred. A New Jersey certificate did not match the Virginia purchaser, omitted a valid exemption reason, and lacked required Virginia-sale support.

All sales were presumed taxable until the retailer proved otherwise. Certificates obtained after an audit were examined more closely and still had to be complete, valid, consistent, and tied to the transaction.

What this means for you

• Validate an exemption certificate before the sale date.
• Match the certificate's purchaser and exemption reason to the order.
• Out-of-state forms do not automatically support a Virginia sale.

Citations and references

• Va. Code § 58.1-623(A)-(B).
• 23 VAC 10-210-280; P.D. 01-36.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-42

Original ruling text

April 27, 2009

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period February 2004 through January 2007.

FACTS

The Taxpayer deals in Internet sales. The Taxpayer contends that at the time of the audit it was unable to validate whether it correctly applied the tax to its Internet sales. The Taxpayer contends that the exemption certificates presented with its appeal support its argument that the sales at issue were correctly made exempt of the tax.

DETERMINATION

Virginia Code § 58.1-623 A states "All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter."

Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A further clarifies the statute and provides that "a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice." Additionally, Section B of the regulation states "Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates."

In Public Document 01-36 (4/11/01), the Tax Commissioner ruled that when a dealer is afforded the opportunity to secure exemption certificates to support untaxed sales, after the performance of an audit, the Department's long standing policy is to more closely evaluate the validity of the certificate ...."

The transaction at issue is for the purchase of a table. The documentation provided by the Taxpayer indicates that the item purchased was to be shipped to a Virginia location. The resale exemption certificate was issued by the Puerto Rican Department of Taxation and is valid from November 15, 2006 through February 15, 2007. The transaction at issue occurred on July 13 2006, before the exemption certificate was valid and accepted. Because the exemption certificate was not valid at the time the transaction occurred, the transaction will not be removed from the audit assessment.

Based on a review of the resale exemption certificate provided, the transaction will be removed from the audit assessment.

Virginia Code § 58.1-623 B provides, in pertinent part, that an exemption "certificate shall be signed by and bear the name and address of the taxpayer, shall indicate the number of the certificate of registration, if any, issued to the taxpayer; shall indicate the general character of the tangible personal property sold, distributed, leased, or stored, or to be sold, distributed, leased, or stored under a blanket exemption certificate; and shall be substantially in such form as the Tax Commissioner may prescribe."

In this instance, a New Jersey exemption certificate was submitted for a Virginia sale. Based on the information provided on the order detail, the customer's billing and shipping locations are in Virginia. Additionally, the exemption certificate does not bear the name of the purchaser as listed on the order detail. Finally, the exemption certificate does not state the reason for why the personal property should have been sold exempt of the tax. For the reasons stated above the exemption certificate is not valid for Virginia sales tax purposes, and the transaction is properly included in the audit assessment and will not be removed.

CONCLUSION

The audit will be revised based on this determination. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 30 days of the date of the bill. Please remit payment within 30 days from the date of the bill to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *, Post Office Box 27203, Richmond, Virginia 23261-7203.

The Code of Virginia sections, regulations and public document cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-2739931678P