Did a purchaser owe Virginia use tax on barter transactions when invoices did not separately show sales tax?

Subject

Taxpayer states assessment of tax on the barter transactions is erroneous

Plain-English summary

A taxpayer acquired tangible personal property through barter and paid a Virginia use-tax assessment. It argued that the exchanged value implicitly included sales tax and that the retailers, rather than the purchaser, were responsible for paying it.

Virginia denied the refund. Barter is a taxable sale, and although a dealer must collect and separately state sales tax, the tax remains the purchaser's legal debt. When the dealer does not charge it, Virginia can collect use tax from the purchaser.

The taxpayer's records showed no separate tax charge and no evidence that retailers remitted tax. Other barter invoices that did show tax were not assessed, while some disputed invoices stated the transaction was exempt. The untaxed barter assessment therefore stood.

What this means for you

• Trading property instead of paying cash does not avoid sales and use tax.
• An assumption that tax was included is not enough; preserve invoices showing tax separately and evidence of payment.
• A purchaser can owe use tax when the seller fails to collect sales tax.

Citations and references

• Va. Code §§ 58.1-602, 58.1-603, 58.1-604, and 58.1-625.
• 23 VAC 10-210-340.
• United States v. Forst, purchaser liability for tax.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-94

Original ruling text

June 1, 2007

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

Dear *:

This will reply to your letter in which you seek the correction of a retail sales and use tax assessment issued to * (the "Taxpayer") for the period January 2003 through March 2005.

FACTS

The Taxpayer was audited by the Department and assessed use tax on tangible personal property acquired in barter transactions. The Taxpayer contends that the assessment of tax on the barter transactions is erroneous. The Taxpayer has paid the contested assessment but requests a refund of the payment.

DETERMINATION

Virginia Code § 58.1-603 imposes a sales tax on retail sales of tangible personal property in Virginia. Virginia Code § 58.1-602 defines the term "sale" to include the barter of tangible personal property. The Taxpayer does not dispute the fact that the barter transactions are subject to Virginia sales and use tax. Rather, the Taxpayer suggests that the barter transactions included the applicable sales tax and that the retailers were responsible for payment of the tax to the Department.

Virginia Code § 58.1-625 states, in part, "The tax levied by this chapter shall be paid by the dealer, but the dealer shall separately state the amount of the tax and add such tax to the sales price or charge. Thereafter, such tax shall be a debt from the purchaser, consumer, or lessee to the dealer until paid . . . "

Based on this statute and the regulation that interprets this statute, Title 23 of the Virginia Administrative Code 10-210-340, although the seller is legally obligated to collect the tax from the purchaser, the tax is the legal debt of the purchaser. Pursuant to Va. Code § 58.1-604, the Department can look to the purchaser for payment of use tax when a retailer fails to charge sales tax on the transaction. This position has been supported by the courts in United States v. Forst , 442 F. Supp. 920 (W.D. Va. 1977), aff'd, 569 F.2d 811 (4th Cir. 1978).

In this instance, the Taxpayer's records did not show a separate charge for sales tax on the barter transactions, and the Taxpayer has not provided any evidence that the tax was remitted to the Department by the retailers. The audit comments note that other barter transactions were reviewed in which the applicable sales tax was charged. These transactions were not included in the audit. The audit comments also show that some of the barter invoices contained statements that the transactions were tax-exempt. The evidence does not support the Taxpayer's contention that it was implied that the sales tax was included in the barter transactions. The statute and its supporting regulation clearly support the audit findings that the Taxpayer is liable for use tax on the untaxed barter transactions.

Based on the above, the audit assessment is correct and there is no basis to refund the Taxpayer's payment of the assessment. The Code of Virginia and regulation 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 website. If you have any questions about this determination, you may contact * in the Office of Policy and Administration, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-736818201S