A scammer posing as a potential employer used my personal information to set up a fraudulent cigarette business under my name -- can I get the resulting sales tax assessment abated?

Plain-English summary

This is another same-day companion ruling in the Department's cigarette compliance-program series. Here, a taxpayer was flagged after a distributor's sales records showed cigarettes purchased tax-exempt for resale under her name, without any corresponding reported taxable sales. The Department sent a summary of findings with a 14-day response window; when the taxpayer didn't respond in time, the assessment issued.

On appeal, the taxpayer offered a specific fraud narrative: she claimed someone posing as a POTENTIAL EMPLOYER had offered her a job, but instead used the personal information she provided during that process to set up an entirely fraudulent cigarette business in her name -- she says she never intended to open or run any business at all. After receiving the assessment, she filed a complaint with the Federal Trade Commission and asked the Department to abate the assessment based on the scam.

The Tax Commissioner applied the same reasoning as the other rulings in this series: the distributor's own sales records identified the taxpayer as the purchaser of record, and she never produced documentation contradicting that (account-opening records showing someone else's involvement, evidence she never had access to the account, or similar proof). A fraud allegation, even a plausible and sympathetic one supported by an FTC complaint, isn't itself evidence in a Virginia tax appeal -- and the Department has no authority to investigate or resolve the underlying scam, which is a matter for law enforcement or the FTC's own consumer-protection process. Because the taxpayer was the purchaser of record and didn't meet her burden of proving the assessment wrong, it was upheld.

What this means for you

Job seekers asked to provide personal information (SSN, ID, signatures) as part of an application or "onboarding" process

Be cautious about providing sensitive personal information to a purported employer before an actual job offer and start date are confirmed in writing -- this ruling illustrates how that information can be misused to open a business in your name, leaving YOU as the tax-liable "purchaser of record" if the scheme involves purchases like tax-exempt cigarette resale.

Anyone who discovers their identity was used to open a fraudulent business account

Filing a police report and an FTC complaint are reasonable protective steps, but by themselves they won't overturn a Virginia tax assessment -- you need documentation that actually contradicts the vendor/distributor's records naming you as the account holder or purchaser (e.g., proof you were out of state, evidence someone else's signature is on the account, correspondence showing you never authorized it).

Anyone facing a Virginia tax assessment tied to an account or business they claim they never actually operated

The Department's role is limited to applying the tax law to the sales/purchase records that exist -- it cannot investigate or resolve the underlying fraud allegation, so your best path is documentary evidence that directly rebuts the specific records the assessment relies on.

Common questions

Q: Someone used a fake job offer to steal my information and open a cigarette business in my name -- will Virginia investigate that for me?
A: No. The Department of Taxation has no authority to investigate, arbitrate, or resolve civil or criminal fraud disputes between private parties -- that's a matter for law enforcement or agencies like the FTC, separate from the tax assessment itself.

Q: I filed a complaint with the FTC about the scam -- will that get my Virginia tax assessment abated?
A: Not by itself. An FTC complaint doesn't function as evidence in the Virginia tax appeal process; you need documentation that directly contradicts the distributor's or vendor's records naming you as the purchaser or account holder.

Q: What does it mean to be the "purchaser of record" for a fraud-related tax assessment?
A: It means the distributor's or vendor's own sales/account records identify you (or your name/business) as the party who made the purchases -- absent contrary documentary evidence, the Department will generally hold that named party responsible for the resulting tax.

Citations and references

• Public Document 18-184 (10/30/2018), P.D. 20-140 (8/18/2020), and P.D. 20-172 (9/29/2020) -- prior Department determinations addressing similar business-identity-theft/fraud defenses to cigarette-purchase compliance assessments, all reaching the same result

Subject

Purchases/Sales of Cigarettes : Business Fraud, ID Theft

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-89

Original ruling text

July 13, 2021

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

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the “Taxpayer”) for the period of November 2016 through January 2017. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer is a retailer of cigarettes. The Department utilizes a compliance program that verifies retail sales and use tax compliance regarding cigarettes purchased for resale and sales of cigarettes by a retailer or wholesale dealer. As a result of the compliance program, the Taxpayer was issued an assessment for tax and interest on untaxed cigarettes purchased from * (the “Distributor”). The assessment is based on sales information provided by the Distributor, identifying the Taxpayer’s purchase of cigarettes exempt of the tax for resale.

It is the Department’s position that the cigarettes purchased by the Taxpayer for resale would have been sold to the Taxpayer’s customers and, therefore, the sales tax should have been collected and remitted to the Department on such sales. Based on the sales information provided by the Distributor, it was determined that the Taxpayer underreported sales of cigarettes, by the amount of the cigarettes purchased from the Distributor for resale.

On September 12, 2017, the Department sent the Taxpayer a summary of the findings and the proposed tax liability. The Taxpayer was allowed 14 days to provide documentation to substantiate whether the Taxpayer’s purchases from the Distributor qualified for the resale exemption or whether the Taxpayer collected and remitted the sales tax on the sale of those purchases. The Taxpayer failed to respond to the Department’s request for documentation within the allotted time and the assessment was issued.

The Taxpayer contests the sales tax assessment and claims that it is not responsible for the purchases of cigarettes from the Distributor. The Taxpayer claims it is a victim of a scam perpetrated by a potential employer in which the Taxpayer was offered employment, but the information was instead used to establish a fraudulent business. After receiving the assessment from the Department, the Taxpayer filed a complaint with the Federal Trade Commission and requests the assessment be abated based on these circumstances.

DETERMINATION

Purchases/Sales

The resale exemption provided under the Virginia retail sales and use tax is found in Virginia Code § 58.1-602. This code section excludes a sale for resale from the definition of a “retail sale,” which is defined as “a sale to any person for any purpose other than for resale in the form of tangible personal property or services taxable under this chapter.”

Virginia Code § 58.1-623 sets forth the requirements for the proper use of exemption certificates and, in section A, provides that “[a]ll 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 provides further explanation of the proper use of exemption certificates. Subsection A states that a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.

Virginia Code § 58.1-633 A provides that every dealer required to make a return and collect sales tax "shall keep and preserve suitable records of the sales, leases, or purchases…taxable under this chapter, and such other books of account as may be necessary to determine the amount of tax due hereunder, and such other pertinent information as may be required by the Tax Commissioner."

The record keeping requirement is further explained in Title 23 VAC 10-210-470 as follows:

Every person who is liable for collection of sales tax or remittance of use tax or both is required to keep and preserve for three years adequate and complete records necessary to determine the amount of tax liability. Such records must include…a daily record of all cash and credit sales, including sales under any type of financing or installment plan in use. A record of the amount of all merchandise purchased, including a bill of lading, invoice, purchase order or other evidence to substantiate each purchase...a record of all deductions and exemptions claimed in filing sales or use tax returns., including exemption and resale certificates, returned or repossessed goods, and bad debts…a record of all tangible property used or consumed in the conduct of the business… a true and complete inventory of the stock on hand and its value, taken at least once each year. Records must be open for inspection and examination at all reasonable hours of the business day by the Department of Taxation.

When a dealer fails to maintain adequate records, the Department is authorized by Virginia Code § 58.1-618 to use the best information available to reconstruct a dealer's sales or purchases to determine whether a tax liability exists.

In this instance, the documentation provided by the Distributor showed that the Taxpayer purchased cigarettes exempt of the tax for resale. The cigarette sales records provided by the Distributors showed that the Taxpayer made cigarette purchases totaling $* exempt of the tax that are not supported by any resale exemption or tax reporting documentation.

The assessment is calculated on the cost price of the cigarettes based on the sales documentation provided by the Distributor, as this was the best information available. The Taxpayer was provided the opportunity to provide documentation to substantiate the exempt purchase or exempt resale regarding the cigarettes at issue, and failed to do so. While the Taxpayer denies that it is responsible for the purchases of such cigarettes, the information provided by the Distributor shows that the Taxpayer’s business purchased the contested cigarettes exempt of the tax for resale from the Distributor. Lacking supporting documentation that the contested cigarettes were purchased fraudulently, I find that the audit assessment is correct.

The Taxpayer claims its personal information was used by the Taxpayer’s potential employer to establish a fraudulent business. However, the Department is not authorized to address, arbitrate or settle civil or criminal disputes between parties. In this instance, the Taxpayer is the purchaser of record regarding the cigarettes at issue based on the Distributor’s sales documentation. This determination is consistent with previous determinations regarding business identity theft including Public Documents 18-184 (10/30/2018), 20-140 (8/18/2020), and 20-172 (9/29/2020). Accordingly, I find the Department properly assessed the retail sales and use tax to the Taxpayer on the cigarette purchases. Based on the facts of this case, the Taxpayer remains responsible for the assessment as issued by the Department.

Virginia Code § 58.1-205 sets out that any assessment of a tax by the Department is deemed prima facie correct. This means that the burden of proving the assessment is erroneous is upon the Taxpayer. Based on the foregoing, the Taxpayer has not met this burden.

CONCLUSION

Based on this determination, the assessment is correct. An updated bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No further interest will accrue provided the outstanding assessment is paid within 60 days from the date of this letter. If the Taxpayer has questions concerning payment of the assessment or bill, the Taxpayer may contact the Delinquent Collections Unit at *.

The Code of Virginia sections and regulations cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules, and Decisions section of the Department’s web site. If you have any questions about this determination, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1478L

Related Documents

18-184

20-140

20-172