Was Virginia's petroleum storage-tank fee part of taxable off-road-fuel sales price, and how could the seller recover other tax overpayments?

Subject

Seller of petroleum products and services fuel tanks and other related equipment

Plain-English summary

Virginia included the petroleum storage-tank fee in the taxable sales price of off-road fuel. The fee was mandated separately from the motor-fuel excise tax and was directly connected with the retail fuel sale.

For sales tax erroneously paid to vendors on resale property, the seller generally had to seek refunds through those vendors because of local-tax allocation and dealer discounts. If that was impractical, it could contact the Department, subject to the three-year period and documentation.

Tax paid on contractor materials used in real-property HVAC repairs was proper. Bad-debt tax previously collected and remitted could be credited on the return for the period when the account became worthless. None of these points justified changing the completed audit assessment.

What this means for you

• A separately stated statutory fee can still enter taxable sales price.
• Distinguish resale inventory from materials consumed as a real-property contractor.
• Seek vendor refunds promptly for tax paid in error on resale purchases.
• Claim bad-debt credits in the period the account becomes worthless.

Common questions

Q: Was the storage-tank fee part of the fuel excise tax?
A: No. The ruling treated it as a separate fee included in retail sales price.

Q: How should vendor tax paid in error be recovered?
A: Generally through the vendor, with Department assistance if that route was impractical.

Q: Could bad-debt tax be credited?
A: Yes, if it had been collected and remitted and was claimed on the return for the worthless-account period.

Citations and references

• Va. Code §§ 58.1-603, 58.1-602, 58.1-2217 F, 62.1-44.34:13, and 58.1-621.
• 23 VAC 10-210-160 and 10-210-3040.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-111

Original ruling text

June 26, 2008

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

Dear *:

This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer"), for the audit period October 2003 through August 2006. I note that the Department's assessment has been paid in full.

FACTS

The Taxpayer sells petroleum products and sells and services fuel tanks and related equipment. The Taxpayer also sells, installs and repairs residential heating and air conditioning equipment. During the audit period, the Taxpayer sold off road fuels that are subject to the retail sales and use tax. The Taxpayer added to the off road fuels charge a per gallon fee that represents the Virginia Petroleum Storage Tank Fee used for the cleanup of leaking storage tanks. While the Taxpayer properly charged the sales tax on the off road fuels, the Taxpayer did not charge the tax on the fee. The auditor held the Taxpayer liable for the tax on the fees. The Taxpayer disagrees with the assessment and contends that the fees are an element of the Virginia Excise Tax on fuels and are not subject to the sales tax.

In addition, the Taxpayer seeks a refund of taxes paid to vendors on purchases of tangible personal property. The Taxpayer states that the property was resold to its customers, and sales tax was charged, collected and paid to the Department. The Taxpayer also seeks a refund for sales taxes paid on invoices written off as bed debts during the audit period.

DETERMINATION

Virginia Petroleum Storage Tank Fee

Virginia Code § 58.1-603 imposes the retail sales tax on the gross sales price of tangible personal property sold at retail in Virginia. Virginia Code § 58.1-602 defines "sales price" as the total amount for which tangible personal property or services are sold, and includes any amount charged as a markup for overhead expenses, other costs or profit in connection with the sale of tangible personal property or services that are a part of the sale. In this instance, the additional charges for storage tank fees are directly in connection with the sale of the off road fuels.

With regard to the Taxpayer's contention that the fee is part of the Virginia Excise Tax on fuel, I cannot agree. Virginia Code § 58.1-2217 A through E specifically provide for the levy of a motor vehicle fuels tax on sales of motor vehicle fuels. Subparagraph F of Va. Code § 58.1-2217 separately provides that in accordance with the provisions of Va. Code § 62.1-44.34:13, a storage tank fee will be imposed on each gallon of gasoline, aviation gasoline, diesel fuel (including dyed diesel fuel), blended fuel, and heating oil sold and delivered or used in the Commonwealth. The Virginia Department of Environmental Quality, State Water Control Board is the responsible agency for establishing the fee under Title 62 of the Code of Virginia . While the fee is mandated by statute and imposed on the sale of fuels, it is not specifically set out as a tax on the sale of motor fuels or as an element of the excise tax as claimed by the Taxpayer. Accordingly, I find that the fee at issue is part of the sales price of the fuels sold. As such, there is no basis upon which to revise the Department's assessment.

Refund of Sales Tax on Purchases

The Taxpayer states that it has paid the retail sales tax on its purchase of materials that were subsequently sold to its customers. The Taxpayer represents that the tax was collected and remitted on such sales. The Taxpayer seeks a refund of such taxes erroneously paid to its vendors.

In regard to sales taxes erroneously paid to vendors, the Department generally prefers to refund the tax through the vendor because of the one percent local sales tax allocation and the dealer's discount. Accordingly, the Taxpayer should present its request for refund directly to its vendors. The Taxpayer may present a copy of this letter as authorization for its request for refund. If this is not practical because a vendor is no longer in business or a vendor does not cooperate with the refund request, the Taxpayer should contact the Department's Customer Services Unit for any refunds. Please note that any request for refund must be made within the three-year statute of limitations and supported by adequate documentation.

In some instances the Taxpayer acts as a contractor with respect to heating arid air conditioning repairs. In such situations, the payment of the tax to vendors on the purchase of items and materials used in such real property repairs is proper and no refund would be due. Conversely, if the Taxpayer collected the tax on such repairs, the Taxpayer may request a refund for such taxes paid to the Commonwealth. The request must be made in accordance with Title 23 of the Virginia Administrative Code (VAC) 10-210-3040.

Refund of Sales Tax Remitted on Bad Debts

Virginia Code § 58.1-621 addresses bad debts as it applies to the retail sales and use tax and states, in part, "the dealer may credit, against the tax shown to be due on the return , the amount of sales or use tax previously returned and paid on accounts which are owed to the dealer and which have been found to be worthless within the period covered by the return." Title 23 VAC 10-210-160 sets forth the Department's interpretation of this regulation and states, "Any dealer may obtain a credit for the amount of any sales or use tax previously reported and paid on a return for accounts found to be worthless. Such credit must be claimed on the return filed for the period in which the account is determined to be worthless ." (Emphasis added).

As provided above, in order to claim a retail sales and use tax credit on a bad debt resulting from a Virginia transaction, the person claiming the debt must be a registered Virginia dealer, and the credit referred to in Va. Code § 58.1-621 applies to tax collected from a customer to whom tangible personal property was sold and which was previously remitted to the Department. Accordingly, the Taxpayer may claim a credit on a current return by entering a deduction for the sales price of tangible personal property for which the state and local sales and use tax was paid in a prior period.

CONCLUSION

Based on this determination, there is no basis to allow for any adjustment to the Department's audit assessment and accordingly, no basis for a refund of the tax that has been properly assessed and paid.

The Code of Virginia sections and regulation cited 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 regarding this matter, please contact * of the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1964928791.Q