Did Virginia approve a manufacturer's refund claim for use tax paid on property allegedly covered by the manufacturing exemption?

Plain-English summary

Virginia found the manufacturer's protective refund claim timely but did not yet approve the refund. The taxpayer said it had bought property exempt under the manufacturing exemption and later mistakenly accrued and paid use tax on the same property.

The Department said the September 2003 protective claim fell within the three-year period in Va. Code § 58.1-1824. But the auditor reported that the taxpayer had not supplied supporting documents during the audit.

Before any refund could issue, the taxpayer had to prove both that the use tax was actually remitted and that the manufacturing exemption applied to the property. Audit staff would contact the taxpayer, which then had 30 days to submit documentation. A refund would be issued only as warranted after verification.

What this means for you

• A timely protective claim preserves the refund issue but does not prove entitlement to a refund.
• The taxpayer must document both tax payment and the underlying exemption.
• Saying records will be provided during an audit is not a substitute for actually supplying them.
• This ruling applies historical deadlines and facts; verify current refund procedures.

Common questions

Did Virginia rule that the purchases were exempt?

No. The manufacturing exemption still had to be verified.

Was the refund claim filed on time?

Yes. The Department found the protective claim timely under Va. Code § 58.1-1824.

What did the taxpayer have to submit?

Documentation showing that the tax was remitted and that the property qualified for the manufacturing exemption.

Citations and references

• Va. Code §§ 58.1-609.3 and 58.1-1824.

Subject

Manufacturing and selling tangible personal property to wholesalers

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-19

Original ruling text

March 27, 2007

Re: § 58.1-1824 Protective Claim for Refund: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request a refund of use tax remitted to the Department. I apologize for the delay in responding to your request.

FACTS

The Taxpayer is primarily engaged in the business of manufacturing and selling tangible personal property to wholesalers. The Taxpayer maintains that it properly purchased certain tangible personal property exempt of the retail sales and use tax pursuant to Va. Code § 58.1-609.3. The Taxpayer further maintains that it later erroneously accrued, reported and remitted use tax on this same property. On September 26, 2003, the Taxpayer filed a protective claim with the Tax Commissioner pursuant to Va. Code § 58.1-1824. The Taxpayer asserts that the refund issue was not resolved during a sales and use tax audit conducted at the time the protective claim was filed and requests the refund be issued.

DETERMINATION

Virginia Code § 58.1-1824 provides that "[a]ny person who has paid an assessment of taxes administered by the Department of Taxation may preserve his judicial remedies by filing a claim for refund with the Tax Commissioner . . . within three years of the date such tax was assessed." Pursuant to Va. Code § 58.1-1824, the Taxpayer's refund request is timely filed.

The Taxpayer maintains that the protective claim filed in September 2003 was not addressed by the Department's audit staff. In its letter, the Taxpayer indicated that it would submit documentation regarding the overpayment of use tax to be reviewed in conjunction with the audit that was being performed. The auditor represents that while the Taxpayer asked about the proper method for handling the overpayments of use tax, the Taxpayer never provided any documentation to the auditor during the course of the audit in support of its contention.

Before a refund can be issued, it must be determined whether the tax has been remitted and whether the manufacturing exemption applies to the tangible personal property at issue.

The Taxpayer's refund request will be forwarded to the audit staff. Once contacted by the audit staff, the Taxpayer will have 30 days to submit documentation verifying that the tax has been remitted and the manufacturing exemption applies. A refund will be issued as warranted upon verification by the audit staff of payment of the use tax and application of the manufacturing exemption.

The Code of Virginia sections 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 response, you may contact * in the Department's Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/56139P