Could a federal IT contractor pursue sales-tax refunds after missing Virginia's appeal and reconsideration deadlines?

Plain-English summary

The taxpayer's second appeal was too late, but a separate amended-return procedure was still open for a limited time. The ruling did not decide whether the disputed purchases were exempt.

The information technology services business performed federal contract work and had been assessed use tax on purchases connected with those contracts. It timely appealed the original assessment in 2008, received a final determination in December 2010, supplied some documentation, and paid the revised assessment in full on February 16, 2012.

The April 2012 filing could not start another administrative appeal because Va. Code § 58.1-1821 required an appeal within 90 days of assessment. Treated as a reconsideration request, it was also late because 23 VAC 10-20-165 required reconsideration within 45 days after the final determination.

Payment created a different route. Va. Code § 58.1-1823(A)(iv) allowed amended returns within two years after payment of an assessment. The taxpayer therefore could file amended returns by February 15, 2014, but its appeal letter itself did not count as an amended return.

Any refund request had to relate solely to the remaining 24 audit transactions, could not exceed the assessment payment, and needed clear supporting evidence. The asserted categories included real-property transactions, resale purchases, research-and-development or manufacturing exemptions, nontaxable services, transportation charges, downloaded software, and other allegedly nontaxable items.

What this means for you

• An appeal, a reconsideration request, and an amended refund return are different procedures with different deadlines.
• Paying an assessment may open a statutory amended-return period, but a letter asking for relief may not satisfy the filing requirement.
• A refund claim under this route must remain tied to the paid audit assessment.
• The Department still required transaction-level proof; it did not accept the claimed exemptions merely because they were listed.

Common questions

Q: Was the April 2012 appeal timely?
A: No. It came after both the 90-day appeal period and the 45-day reconsideration period.

Q: Did the appeal letter count as an amended return?
A: No.

Q: What was the taxpayer-specific amended-return deadline?
A: February 15, 2014.

Q: Did the ruling approve the exemption claims?
A: No. It directed audit review after proper amended returns and supporting documentation were filed.

Citations and references

• Va. Code § 58.1-1821.
• Va. Code § 58.1-1823(A)(iv).
• 23 VAC 10-20-165(B)(1)(b), (F)(1), and (F)(4)(b).

Subject

Tax paid in error on a number of exempt transactions/IT service business/contract work for the federal government.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-7

Original ruling text

January 23, 2013

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

Dear *:

This will reply to your letter in which you seek correction of a retail sales and use tax assessment issued to * (the "Taxpayer") for the period March 2003 through March 2006.

FACTS

The Taxpayer is an information technology services business that performs contract work for the federal government. The Taxpayer was audited and assessed use tax on various purchases that were made in connection with the performance of government contract work. The Taxpayer filed an administrative appeal of the assessment on April 17, 2008. The Department responded to the Taxpayer's appeal in a determination letter issued on December 15, 2010. The determination allowed the Taxpayer to provide documentation to support some of the claims made in its appeal. The assessment was deemed correct with respect to other issues raised in the appeal. The Taxpayer provided some documentation to the Department which was reviewed by the Department's audit staff. This review resulted in the revision of the audit and the assessment. The Taxpayer subsequently paid the revised assessment in full on February 16, 2012.

The administrative appeal now under consideration was filed by the Taxpayer on April 11, 2012. The Taxpayer maintains that the tax was paid in error on a number of exempt transactions. The Taxpayer requests a refund of the tax amounts erroneously paid based on several issues set out in this appeal.

DETERMINATION

§ 58.1-1821 Application

Virginia Code § 58.1-1821 states, in part, that "[a]ny person assessed with any tax administered by the Department of Taxation may, within ninety days from the date of such assessment, apply for relief to the Tax Commissioner." An interpretation of Va. Code § 58.1-1821 is provided in Title 23 of the Virginia Administrative Code (VAC) 10­20-165. Title 23 VAC 10-20-165 B 1 b states that “[t]he department strictly enforces the 90-day limitations period for filing a timely administrative appeal. A taxpayer must file a complete appeal within 90 calendar days after the date of assessment." In the instant case, the Taxpayer filed a complete appeal of the assessment on April 17, 2008, which was within the required 90 days from the date of the original assessment. This appeal was answered in the Department's determination letter dated December 15, 2010. The Taxpayer's current appeal was received by the Department on April 11, 2012. Thus, the appeal was not timely filed within 90 days from the date of assessment, as required by Va. Code § 58.1-1821.

Because the April 17, 2008 appeal was filed and a determination issued, the Taxpayer's current appeal letter is properly deemed to be a request for reconsideration. Title 23 VAC 10-20-165 F 1 states that a request for reconsideration must be received by the Department within 45 days after a final determination is issued by the Tax Commissioner. The final determination for the original appeal was issued on December 15, 2010. The Taxpayer filed the current appeal April 11, 2012, which is well beyond the required 45 days to file a reconsideration request. As provided in Title 23 VAC 10­20-165 F 4 b, the Taxpayer's request for reconsideration cannot be considered if received by the Department more than 45 days after the final determination.

§ 58.1-1823: Payment of Assessment

While there is no basis to grant the Taxpayer's request for reconsideration, Va. Code § 58.1-1823 A (iv) allows a person that has paid an assessment for a tax administered by the Department of Taxation to file an amended return within two years from the date of payment of the assessment. The statute also states that the issues raised in the amended return must relate solely to the assessment and the refund claimed on the return or returns cannot exceed the amount of such payment. According to the Department's records, the Taxpayer paid the disputed assessment in full on February 16, 2012. While the Taxpayer filed this appeal and claim for refund for the audit period at issue on April 11, 2012, the Taxpayer did not file amended returns to claim refunds of the assessment payment as provided by the statute. The appeal filed by the Taxpayer is not sufficient to constitute the filing of an amended return as required by the statute.

Based on the provisions of Va. Code § 58.1-1823 A (iv) and subject to the constraints of this statute, the Taxpayer can still timely file amended returns claiming refunds of the sales and use taxes it contends were paid in error. The amended returns must be filed with the Department on or before February 15, 2014 to be considered timely.

The Taxpayer raises several issues in its letter that serve as the basis for the refund claims. The Taxpayer states that the tax was paid in error on real property transactions, purchases for resale, purchases that qualify for the research and development or manufacturing exemptions, purchases of nontaxable services, exempt transportation or delivery charges, downloaded software and other nontaxable items. The Taxpayer indicates that it has documentation to provide the Department that supports the claims for refund of the taxes that it contends were erroneously paid.

As Va. Code § 58.1-1823 A (iv) states, the issues raised in the Taxpayer's letter must relate solely to the audit assessment. According to the Department's records, 24 transactions remain in the audit after the audit was revised in accordance with the Department's December 15, 2010 determination. The Taxpayer's refund claims on the amended returns must relate to the remaining 24 transactions in the audit and clear evidence must be provided to that effect. If the Taxpayer is unable to prove that the transactions are related solely to the audit assessment, the claims for refund will not be considered by the Department because they are barred by the provisions of Va. Code § 58.1-1823.

The amended returns can be mailed to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, P.O. Box 27203, Richmond, Virginia 23261-7203, Attention: *. The amended returns can also be delivered by hand to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Main Street Centre, 600 East Main Street, Richmond, Virginia 23219, Attention: ***. The Taxpayer may provide the supporting documentation with the amended returns or should be prepared to provide the documentation at the Department's request.

CONCLUSION

The Taxpayer's amended returns and the supporting refund documentation will be referred to the Department's audit staff for review. If necessary, a member of the audit staff will contact the Taxpayer to arrange a mutually agreeable time to review the supporting documentation for the refund claims. The audit and the corresponding assessment will be adjusted based on this review and the Taxpayer will be notified in writing of the results of the review.

The Code of Virginia sections and regulation cited, along with other reference documents are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. If you have any questions concerning this determination or the procedures for filing amended returns, please contact * at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5059555923.S