Did a city's communications-tax exemption apply back to January 1, 2007 when its provider had one valid certificate but taxed other city accounts?

Subject

One city exemption certificate covered all communications accounts from tax inception

Plain-English summary

Virginia ruled that the provider should refund communications tax charged to all city accounts back to January 1, 2007. The city was a political subdivision expressly outside the tax from the day the new statewide communications levy began.

A provider still had to receive a properly executed exemption certificate before treating a customer as exempt. Here, the provider acknowledged it had a valid city certificate for at least one account and had already coded that account exempt.

The certificate proved the city's exempt entity status; separate certificates were not required for every account. Once the provider received the valid certificate, it should have exempted all city accounts and, when the error surfaced, refunded all tax collected since inception.

After refunding or crediting the city, the provider could request recovery from Virginia for the net tax it had actually remitted.

What this means for you

• Government exemption existed by statute, but the provider still needed documentation.
• One valid entity certificate could cover multiple accounts under this ruling.
• The provider, not the customer, had to make the customer whole first.
• Provider recovery was limited to the net tax remitted to the state.

Common questions

When did the city's exemption begin?

January 1, 2007.

Were separate certificates required for each account?

No.

How could the provider recover the refunded tax?

By proving it refunded or credited the city, then requesting the net remitted amount from Virginia.

Citations and references

• House Bill 568, 2006 Va. Acts ch. 780.
• Va. Code § 58.1-648(A) and (B)(ix).
• Virginia's November 1, 2006 Guidelines and Rules for the Virginia Communications Taxes.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 09-178

Original ruling text

November 19, 2009

Re: Ruling Request: Communications Sales and Use Tax

Dear**:

This is in response to your letter of April 16, 2009 requesting a ruling on the application of the Communications Sales and Use Tax to exempt government entities.

FACTS

On June 20, 2008, the (the “City”) requested a refund from * (the “Provider”) for Communications Sales and Use Tax paid by the City since January 1, 2007, when the Communications Sales and Use Tax was first imposed by the Commonwealth. As a political subdivision of the Commonwealth, the City enjoys an exemption from the Communications Sales and Use Tax under Va. Code § 58.1-648(B)(ix). During the discussions regarding the refund, the Provider discovered that at least one of the City’s accounts was properly coded as exempt from Communications Sales and Use Tax and had been since January 1, 2007. Also, on July 29, 2008, the Provider verified that it had received at least one properly executed exemption certificate from the City. The Provider then asked the City to provide exemption certificates for each separate account, and the City did so. While these exemption certificates were dated January 1, 2007, they were not presented to the Provider until January 22, 2009. The Provider has refused to refund the Communications Sales and Use Tax paid by the City for these accounts prior to the date that the exemption certificates were presented.

The City requests a ruling on the effective date of its exemption.

DETERMINATION

Effective January 1, 2007, House Bill 568 ( Acts of Assembly 2006, Chapter 780) replaced many of the state and local communications taxes and fees with a centrally administered Communications Sales and Use Tax. On November 1, 2006, the Department of Taxation (“TAX”) issued Guidelines and Rules for the Virginia Communications Taxes (“Guidelines”) to provide guidance to taxpayers and local governments regarding the new law.

Va. Code § 58.1-648(A) imposes “a sales or use tax on the customers of communications services in the amount of 5% of the sales price of each communications service that is sourced to the Commonwealth.” Va. Code § 58.1-648(B)(ix) excludes “charges for communications services to the Commonwealth, any political subdivision of the Commonwealth, and the federal government and any agency or instrumentality of the federal government” from the sales price on which the tax is levied. As the City was a political subdivision on or before January 1, 2007, it has never been subject to the Communications Sales and Use Tax.

However, the Guidelines provide that “all sales of communications services are subject to the tax until the contrary is established”, and that a “provider is required to collect the communications sales tax unless the provider receives a properly executed exemption certificate from the purchaser.” A provider may not exempt a purchaser from the Communications Sales and Use Tax without a properly executed exemption certificate, even if the purchaser is an exempt entity. However, once a properly executed certificate of exemption is presented, the provider must refund any taxes collected from the exempt entity during the period of time covered by the certificate and continue to hold the entity exempt, except upon notice from TAX that the certificate is no longer acceptable.

An exemption certificate is the method by which an entity provides proof that the entity is exempt. An entity does not have to provide separate certificates for each account. In this situation, the Provider acknowledged to the City that it had received a properly executed exemption certificate from the City for at least one of its accounts. At that time, the Provider should have coded all of the City’s accounts as exempt from taxation. When the error was discovered, the Provider should have refunded any Communications Sales and Use Tax paid by the City since the inception of the tax on January 1, 2007.

A provider who erroneously collects the tax can request a credit from TAX, so long as it can be demonstrated that the erroneously collected tax was refunded to the customer or credited to his account. The amount refunded will be the net amount of tax remitted to the state on the transaction(s) generating the refund. Pursuant to the Guidelines, once the Provider has provided proof to TAX that it has refunded the tax collected from the City, the Provider may request a refund from TAX.

CONCLUSION

The Va. Code sections and regulations cited, along with other reference documents, are available on-line in the Tax Policy Library section of TAX's web site, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact * in the Office of Tax Policy, Policy Development Division, at *.

Sincerely,

Janie E. Bowen

Tax Commissioner

PDO/1-3417201028

JEB/amm