Would Virginia accept a retailer's electronic multipurpose exemption certificate and electronic customer signature?

Subject

Use of an electronic multipurpose exemption certificate with an electronic signature.

Plain-English summary

Virginia rejected the retailer's proposed electronic multipurpose exemption certificate because it did not capture the exemption-specific information and statements required by state forms. The electronic signature itself was not the central problem.

The Department was willing to accept an electronic blanket resale certificate if it contained everything required by Virginia Form ST-10. The proposed form did not. Its generic design also failed to distinguish eligible Virginia and federal government purchasers from other states' governments or require the official purchase order needed for government purchases.

For nonprofit customers, merely recording the organization's identity was insufficient. The system needed the Department-issued exemption letter and number or other authorization required under the nonprofit rules then in effect.

Virginia would accept another state's resale certificate when it contained the same information needed for Form ST-10, including the out-of-state registration number. The Commissioner encouraged further work on electronic certificates and suggested a possible pilot program.

What this means for you

• Electronic format and electronic signatures can be acceptable, but required exemption content cannot be simplified away.
• Resale, government, nonprofit, and other exemptions may require different statements and supporting documents.
• Out-of-state certificates need the information Virginia requires for its own resale form.
• Audit systems should preserve both the signed certificate and the underlying authorization details.

Common questions

Did Virginia ban electronic exemption certificates? No. It supported them in principle but rejected this incomplete form.

Could a single generic form cover every exemption? Not without capturing all exemption-specific information, statements, and documents.

Citations and references

• Va. Code §§ 58.1-623, 58.1-623.1, and 58.1-609.11(A).
• 23 VAC 10-210-280 and 10-210-690.
• P.D. 95-316 (December 15, 1995), P.D. 97-95 (February 21, 1997), P.D. 91-105 (June 28, 1991), and P.D. 00-91 (May 26, 2000).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 08-18

Original ruling text

February 29, 2008

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in reply to your letter submitted on behalf of * (the "Taxpayer"), in which you request the Department's approval for the use of an electronic multipurpose exemption certificate with an electronic signature.

FACTS

The Taxpayer operates approximately 900 retail locations throughout the United States. Many of the Taxpayer's customers, at the point of sale (POS), make purchases exempt of the sales tax utilizing paper exemption certificates. The customers are tax exempt organizations or are purchasing for resale. In order to streamline the process, the Taxpayer has implemented an electronic tax exemption certificate program.

The tax exempt customer will supply to the cashier at the POS information usually presented on paper exemption certificates. Such information includes the name and address of the organization or company, the organization's or company's permit, registration or tax exempt number, and the name, title, and other relative information of the person requesting tax exemption for the organization or company. The customer reviews the information that has been keyed, and approves by way of signing a computerized signature pad that produces an electronic representation of the signature on the computer generated certificate. The Taxpayer has submitted an example of the electronic certificate with an electronic signature.

The Taxpayer asks if the Department will accept the electronic version of the exemption/resale certificate with an electronic signature as adequate proof of documentation in the event of an audit. The Taxpayer also questions if the Department accepts out-of-state exemption or resale exemption certificates.

RULING

Generally

Virginia Code §§ 58.1-623 and 58.1-623.1 and Title 23 of the Virginia Administrative Code (VAC) 10-210-280 set forth the minimum criteria for the proper use of exemption certificates. Virginia Code § 58.1-623 B specifically provides that a certificate "shall be substantially in such form as the Tax Commissioner may prescribe." Generally, the use of a "generic" or "blanket" exemption certificate has not been allowed because specific exemption forms are available for the various exemptions provided under Virginia law.

Resale Exemption/Multi-Purpose Exemption Certificates

The Department has allowed the use of a "blanket" certificate of exemption with respect to the resale exemption and would be willing to allow the use of such a document in electronic form. In prior rulings, the Department has set forth the requirements for the use of a "blanket" resale exemption certificate in place of the Department's prescribed Resale Certificate of Exemption, Form ST-10. The requirements stipulate that the information necessary for the completion of Form ST-10 must be the same information necessary for completion of the "blanket" resale certificate of exemption form. Based on a review of the information provided, the Taxpayer's exemption certificate in electronic format does not capture the required information or statements provided on the Virginia resale Form ST-10. Therefore, the form is not acceptable in its present form. See Public Documents (P.D.) 95-316 (12/15/95) and 97-95 (2/21/97), which further discuss the Department's policies.

In regard to a blanket or generic multi-purpose exemption certificate, whether in paper or electronic format, the Department must ensure that all necessary information is available to verify that an exemption is properly utilized at the POS. Based on the example provided, while the Taxpayer's electronic exemption certificate identifies exempt organizations, it is not designed to capture the content of the information provided on the Department's various exemption certificates. For example, the Department's Certificate of Exemption Form ST-12 allows federal government entities and state and local governments of Virginia to make purchases exempt of the tax. The form may not be used by governmental entities of other states. The Taxpayer's electronic exemption certificate does not differentiate between Virginia government entities or federal and state governmental entities. In addition, Title 23 VAC 10-210­-690 requires that a government agency provide an official purchase order to ensure that the purchase is for the use or consumption of the government. The Taxpayer's electronic certificate does not require that an official purchase order be furnished to support the exempt purchase by a governmental entity.

It also appears that the Taxpayer's electronic exemption certificate would allow any nonprofit organization to make tax-exempt purchases without furnishing specific documentation of its exempt status for sales tax purposes. With regard to such nonprofit organizations, prior to July 1, 2004, the Code of Virginia set out specific exemption statutes for certain nonprofit organizations. (Effective July 1, 2004, however, the Virginia General Assembly enacted a nonprofit exemption for nonprofit organizations that must meet certain criteria to be allowed the exemption.

Virginia Code § 58.1-609.11 A provides that any nonprofit organization that held a valid exemption certificate on June 30, 2003, would retain its exemption. With regard to the issuance of such exemptions, the Department will issue a certificate of exemption letter and an exemption number to a nonprofit organization that qualifies for exemption. Nonprofit organizations that present a certificate of exemption letter issued by the Department under Va. Code § 58.1-609.11 may purchase tangible personal property exempt of the tax. While the Taxpayer's electronic exemption certificate may provide identification of a nonprofit organization, its format does not allow for the wording provided in the exemption letter that authorizes the nonprofit organizations exemption from the tax. Accordingly, the Taxpayer's multi-purpose electronic exemption certificate as presented is not acceptable.

Out-of-State Exemption Certificates

In P.D. 91-105 (6/28/91), the Department allowed the resale exemption for an out-of-state dealer who was not registered with Virginia, provided it used the Department's Form ST-10 and referenced the out-of-state registration number on the ST-10. The Department will accept other states' resale exemption certificates, provided all of the information necessary for the completion of the Form ST-10 is the same information necessary for completion of the out-of-state or resale exemption certificate.

CONCLUSION

As previously provided in P.D. 00-91 (5/26/00), the Department sees a potential use for electronic certificates of exemption, but to the extent that specific wording be included insuring that the validity of the exemption is not compromised. The Department would support the use of such electronic exemption certificates and would be interested in pursuing the matter. It would be beneficial to establish dialogue with a retailer group and identify the issues and possible approaches to establishing electronic certificates of exemption. One approach may be to perform a pilot program using a selected electronic exemption certificate. If interested in further developing the use of such certificates, please contact * of the Department's Office of Tax Policy, Appeals and Rulings, at ***.

The Code of Virginia sections, regulations and public documents 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 additional questions regarding this matter, please contact *.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1588365198.Q