Could a Virginia seller remove assessed sales by providing exemption certificates during its appeal after the audit?

Subject

Valid exemption certificates: Documentation

Plain-English summary

Virginia agreed to remove six groups of assessed sales after the seller supplied valid exemption certificates with its appeal. The audit had taxed sales reported as exempt because valid certificates were not then available.

Virginia law placed the burden of proving an exempt sale on the dealer unless it took an exemption certificate. The cited regulation said a certificate that was incomplete, invalid, infirm, or inconsistent on its face was never acceptable. Certificates obtained during or after an audit were accepted only when valid for the specific transaction.

The certificates submitted on appeal were complete and consistently supported the exempt sale of the particular products to those customers. Virginia referred the case to audit staff to remove lines 1 through 6 from the contested-sales list and make the warranted adjustments.

What this means for you

• Obtain and review exemption certificates when the sale occurs whenever possible.
• A late certificate must still be complete, facially consistent, and tied to the specific transaction.
• The dealer carries the burden of proving that a sale was exempt.
• Keep customer, product, invoice, and certificate records together for audit support.

Common questions

Did Virginia accept the certificates merely because they were submitted?

No. It accepted them because they were complete and consistently supported the specific exempt sales.

Were all assessed transactions discussed?

The ruling specifically directed removal of lines 1 through 6 in the Exceptions List of Contested Sales.

Citations and references

• Va. Code § 58.1-623(A).
• 23 VAC 10-210-280(A).
• P.D. 95-112.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-15

Original ruling text

February 11, 2011

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

Dear *:

This reply is in response to your letter in which you request correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the period January 2006 through December 2008. I apologize for the delay in the Department's response.

FACTS

The Taxpayer was audited and assessed the retail sales tax on sales reported as tax exempt but not supported by valid exemption certificates. The Taxpayer protests the assessment and presents exemption certificates to substantiate the assessed sales.

DETERMINATION

Virginia Code 58.1-623 A states, "[T]he burden of proving that a sale... 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 ...." Title 23 of the Virginia Administrative Code 10-210-280 A instructs that "a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable ...." Additionally, as discussed in Public Document 95-112 (5/11/95), exemption certificates secured during or after the audit are accepted only if they are valid for the specific transaction.

The Taxpayer has presented exemption certificates with its appeal that are complete and consistently support the exempt sale of the specific products sold to those customers. Therefore, I will agree to remove the sales on lines 1 through 6 in the Exceptions List of Contested Sales. This matter will be referred to the audit staff to make the appropriate adjustments as warranted.

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

Sincerely,

Linda D. Foster

Deputy Tax Commissioner

AR/1-4414449089.M