The auditor's sample included some materials I bought knowing a customer would immediately buy them from me — can I get those specific purchases removed from an estimated assessment?

Plain-English summary

A Virginia dealer was audited for May 2020 through April 2023, and the audit used a sample-and-extrapolation method to identify untaxed purchases. The Taxpayer's correction request focused narrowly on two specific transactions in the sample — both involving computer cabling, one of which also included "pulling line" — arguing these were purchases made for resale and should have been excluded from the taxable sample entirely.

The legal test: intent at the time of purchase. As a real-property contractor, the Taxpayer is generally deemed under Virginia Code § 58.1-610 to have purchased all its materials for its own use and consumption. But 23 VAC 10-210-410 B carves out an exception for a consuming contractor who ALSO sells tangible personal property at retail: such a contractor may buy specific property tax-exempt under a resale certificate, but only if it knows, at the moment of purchase, that the specific property will be resold rather than installed.

Cabling: removed from the sample. The Taxpayer showed that in both contested transactions, the cabling was purchased at a customer's specific request, with the customer intending to buy that exact cabling immediately — and the Taxpayer submitted documentation proving it collected and remitted sales tax on the resulting sale to the customer. Because the resale intent existed at the time of purchase, and the property retained its identity as tangible personal property (rather than being installed as part of a real property contract), the cabling amounts from both transactions were removed from the sample.

Pulling line: stayed in the sample. The pulling line was different — it wasn't purchased at any specific customer's request or for any particular project. It was general-purpose material the Taxpayer used across many jobs in its ordinary contracting work. Because there was no resale intent at the time of purchase, it didn't qualify for the resale exemption and remained a taxable exception in the sample.

Result: the audit was returned to field audit staff to revise the assessment — removing the cabling amounts but keeping the pulling line exception — with a revised report and adjusted bill to follow.

What this means for you

Contractors who both install their own work and sell materials at retail

If you want a specific purchase excluded from an audit sample as a "resale," you need to be able to show that, at the moment you bought it, you already knew that specific item would be resold to a specific customer — not just that some of your purchases eventually get resold in general. Documentation showing the customer's request and your own collection/remittance of sales tax on the resale is what carried the day here.

General-purpose materials used across multiple jobs

Don't expect the resale exemption to cover materials you buy for ongoing use across many projects, even if occasionally some of that inventory ends up resold. The test is about your intent for that SPECIFIC purchase at the time you made it.

Accountants and tax professionals reviewing an audit sample

When challenging specific exceptions in a sample-based assessment, focus on documentation that pins down intent at the time of purchase — a general assertion that "we sometimes resell this kind of material" won't be enough; you need item-specific evidence tied to the actual purchase.

Common questions

Q: Can I get an audit exception removed by showing I eventually resold the item?
A: Not automatically — you need to show you knew, at the TIME OF PURCHASE, that the specific property would be resold, not just that a resale happened to occur later.

Q: What kind of documentation helped in this case?
A: Evidence that a customer specifically requested the material with intent to buy it immediately, plus proof the contractor collected and remitted sales tax on that resale.

Q: Why didn't the pulling line qualify for the same treatment as the cabling?
A: The pulling line was general-purpose material used across many projects, not purchased for any specific customer or resale — so there was no resale intent at the time of purchase.

Q: Does this mean the whole assessment gets thrown out if I win on one item?
A: No — only the specific items you successfully challenge are removed from the sample; the audit is revised, not voided, and other exceptions (like the pulling line here) can still stand.

Citations and references

Statutes and regulations:

• Va. Code § 58.1-610 — contractor deemed to purchase all tangible personal property for its own use in a real property contract
• 23 VAC 10-210-410 B — a consuming contractor who also sells at retail may buy exempt for resale only if it knew at the time of purchase the property would be resold

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 24-148

Original ruling text

December 19, 2024

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 May 2020 through April 2023.

FACTS

An audit conducted on the Taxpayer, a Virginia dealer for the period at issue, resulted in an assessment for untaxed purchases. The Taxpayer filed an application for correction contending that two of the purchase exceptions listed in the sample and extrapolation calculations were purchases for resale and should be removed from the sample.

DETERMINATION

For retail sales and use tax purposes, Virginia Code § 58.1-610 provides that businesses that contract to perform construction, reconstruction, installation, repair, or any other service with respect to real estate or fixtures thereon are deemed to have purchased all tangible personal property for use or consumption in the performance of such contract. Tile 23 of the Virginia Administrative Code (VAC) 10-210-410 B provides that a consuming contractor who also sells tangible personal property at retail must obtain a certificate of registration and may purchase tangible personal property under a resale certificate if it knows at the time of purchase that the property will be resold.

The Taxpayer argues two transactions included in the sample were for the purchase of computer cabling and pulling line. In the first transaction, the Taxpayer purchased a quantity of computer cabling and pulling line. In the second transaction, only computer cabling was purchased.

The cabling from both transactions was purchased at the request of a customer who had the intent to purchase the cable from the Taxpayer immediately. The Taxpayer submitted documentation that substantiates the tax-free purchase of the cabling and pulling line as well as the collection and remittance of Virginia sales and use tax on the sale price of the computer cabling. In accordance with the regulation cited above, the Taxpayer was prohibited from purchasing inventory under a resale exemption certificate unless it knew at the time of purchase that the property would be resold. In this case, the cabling from each of the two contested transactions was purchased knowing the cabling would be immediately sold to a customer, retaining its status as tangible personal property, and not installed as part of a real property contract.

The pulling line was not used for a specific project; it was used across many projects and was not purchased at the specific request of the Taxpayer’s customer. The pulling line was not purchased to be resold, but to be used in the Taxpayer’s activities as a consuming contractor.

Based on this determination, the audit will be returned to the appropriate field audit staff for revision. The amounts for cabling on the two transactions will be removed from the sample. The exception amount for the pulling wire will remain in the sample. A revised audit report and an adjusted assessment will be mailed to the Taxpayer. The Taxpayer should remit payment of the balance due within 30 days of the date on the updated bill to avoid the accrual of additional interest or possible collection action.

The Code of Virginia section and regulation cited are available online at law.lis.virginia.gov. If you have any questions regarding the review of documentation, you may contact the auditor. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Sales Tax Adjudication, at or **.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR/5016.Z

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