Could an industrial-gas seller accept a resale certificate obtained during audit for bulk oxygen sold to a home-healthcare facility?

Plain-English summary

Virginia upheld sales tax on the bulk oxygen because the supplier could not rely on the resale certificate obtained during the audit. A certificate taken after transactions lacked ordinary good-faith protection and had to be validated for the specific sales.

The home-healthcare facility was treated as a service provider and consumer of property used in its services, not as a dealer buying oxygen for resale. Its Form ST-10 resale certificate therefore did not match the transaction.

The supplier argued that Virginia should collect from the purchaser instead. The Department said the dealer had a collection duty while tax was also the purchaser's legal debt, allowing the Department to proceed against either party.

What this means for you

• Obtain and review exemption certificates at the time of sale.
• A late certificate receives greater scrutiny and must fit the exact transaction.
• A service provider generally cannot use a resale certificate for property it consumes.
• Seller collection duties remain even though the purchaser also owes the tax.

Citations and references

• Va. Code §§ 58.1-623, 58.1-612, and 58.1-625.
• 23 VAC 10-210-280.
• The source cites P.D. 88-78, 92-172, 94-145, and 98-29.

Subject

Exempt tax on sales of bulk oxygen to a home healthcare facility

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 06-134

Original ruling text

October 30, 2006

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 July 2001 through December 2003. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer provides industrial gases to schools, government facilities, medical entities, and other entities in Virginia. An audit was conducted by the Department that resulted in the assessment of tax on sales of bulk oxygen to a home healthcare facility. The Taxpayer takes exception to the assessed tax and contends that the exemption certificate obtained from the home healthcare facility during the audit is valid for the sale of oxygen. The Taxpayer believes the sales should be removed from the assessment.

DETERMINATION

Pursuant to Virginia Code § 58.1-623, all sales or leases are subject to the tax until the contrary is established. The 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.

The proper use of certificates is set out in Title 23 of the Virginia Administrative Code (VAC) 10-210-280, which provides:

Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax-free purchase of any items of tangible personal property not covered by the exact wording of the certificate. [Emphasis added.]

The Department has previously ruled in Public Document (P.D.) 98-29 (2/20/98) that the absence of an exemption certificate at the time of a sales transaction indicates that the certificate was never accepted in good faith. Thus, exemption certificates obtained after the start of an audit cannot be accepted "in good faith" and are subject to greater scrutiny by the Department. Accordingly, such certificates are acceptable only if the Department is able to confirm that a customer's use of the certificate was valid and proper for a specific transaction identified during the audit.

In addition, the Department has previously ruled on the application of the Virginia retail sales and use tax to home health care service organizations. See P.D. 94-145 (5/2/94) and P.D. 92-172 (9/10/92). Based on these documents, home health care service organizations are deemed service providers. As service providers, they are considered the users and consumers of all tangible personal property purchased and provided in the provision of home health care services and must pay the tax to their suppliers when making purchases or remit the use tax directly to the Department.

In this case, the resale exemption certificate obtained by the Taxpayer during the audit does not enjoy "good faith" protection because it was not accepted at the time of the sales transaction. Furthermore, the Taxpayer did not exercise due diligence as set forth in Title 23 VAC 10-210-280 when accepting a resale exemption certificate (Form ST-10) from the home health care facility. The Department's resale exemption certificate is for use by a dealer who purchases tangible personal property for resale. Based on the foregoing, home health care facilities are considered service providers and not dealers. Therefore, the use of the resale exemption certificate in this instance is improper.

The Taxpayer contends that the liability for payment of the tax falls on the purchaser and the Department should seek payment of any sales tax from the purchaser rather than the Taxpayer. Virginia Code § 58.1-612 legally requires the dealer to collect and remit the sales tax on all sales or leases of tangible personal property. In addition, Va. Code § 58.1-625 makes the tax the legal debt of the purchaser. In light of the construction of these two statutes, it has been the Department's long-standing position that the Department may proceed against either the retailer or the purchaser for payment of the tax liability. See P.D. 98-29 and P.D. 88-78 (5/10/88).

Based on this determination, the assessment is correct. An updated 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 from the date of the bill.

The Code of Virginia sections, regulation and public documents cited, along with other reference documents, 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 determination, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/56413i