Did a panel seller provide enough evidence to remove set-up fees and sales allegedly picked up outside Virginia from its audit?

Subject

Set-up fees were removed, but undocumented out-of-state pickup claims failed

Plain-English summary

Virginia reached a split result: it removed documented set-up fees from the audit but kept sales of panels that the seller claimed were picked up in North Carolina. The earlier determination had classified the set-up transactions as construction services rather than retail sales of panels. The new documentation was sufficient to remove those fees.

For the sales without installation, the invoices listed Virginia “ship to” addresses and identified the Virginia city or county where each job was located. The seller did not provide documentary proof that the Virginia contractor actually picked up the panels at the North Carolina plant.

Audit staff also found trucking-labor invoices tied to some of the contested sales. Without convincing contrary evidence, the Commissioner inferred that comparable delivery invoices existed for the remaining sales and left that part of the assessment in place.

What this means for you

• Documentation can remove audit items when it proves the transaction's actual character.
• An invoice's Virginia delivery or job-site information can outweigh an unsupported claim of out-of-state pickup.
• Documentary proof of pickup or delivery is critical when the transaction location determines tax treatment.
• Related trucking invoices can support an inference that other transactions were delivered in the same way.
• Virginia assessments are presumed correct, so the taxpayer must prove the requested adjustment.

Common questions

Why were the set-up fees removed?

The submitted documentation supported the prior conclusion that they were construction services rather than retail panel sales.

Why did the panel sales remain in the audit?

The seller did not prove North Carolina pickup, while the invoices showed Virginia job locations and additional invoices showed trucking labor.

Did Virginia accept the “ship to” field as merely an internal job identifier?

No. Without documentary pickup evidence, that explanation did not overcome the audit record.

What was the final result?

The audit was revised for the set-up fees, but not for the contested sales without installation.

Citations and references

• Va. Code § 58.1-205(1).
• Virginia Public Document 09-142.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-115

Original ruling text

July 1, 2010

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

Dear *:

This is in response to your letter in which you submit additional documentation in response to my determination issued in Public Document 09-142 (9/29/09) concerning the retail sales and use tax assessment issued to * (the Taxpayer) for the period February 2004 through June 2007. You also request reconsideration of such determination.

FACTS

The prior determination allows the audit to be revised if the Taxpayer is able to furnish sufficient documentation to support the removal of set-up fees from the audit. Such transactions were determined to be construction services and not retail sales of panels.

In regard to the reconsideration request, the Taxpayer claims that it did not deliver the panels to the contractor in Virginia with respect to the sales made without installation. Rather, the Taxpayer asserts that the contractor picked up the panels in North Carolina and transported them to the Virginia job site. Accordingly, the Taxpayer contends it correctly collected the North Carolina sales tax on these transactions, and the "ship to" address is only a means of identifying the job for the benefit of the contractor.

DETERMINATION

Set-up fees

Based on the documentation furnished for this issue, I find basis for removing the set-up fees assessed in the audit.

Sales without Installation

The Taxpayer has presented the invoices listed in the audit for the panels claimed to be sold without installation. These invoices show that Virginia addresses were used in the "ship to" portion of each invoice and includes the city or county in Virginia in which the job was located. The Taxpayer, however, has provided no proof that these sales were picked up at the Taxpayer's North Carolina plant by the Virginia contractor.

Virginia Code § 58.1-205 1 deems any assessment of tax by the Department to be prima facie correct. This means that the Taxpayer has the burden of proving that the assessment is incorrect. With respect to the sales in question, the Taxpayer has not shown through documentary evidence that the Virginia contractor picked up the panels in North Carolina as claimed. Because the evidence presented does not establish the Taxpayer's claim, the Taxpayer has not met the required burden of proof.

Furthermore, in connection with 14 of the 182 sales in question, the Department's audit staff has obtained eight additional invoices indicating the Taxpayer also charged the Virginia contractor for trucking labor. [See the enclosed schedule listing the fourteen invoices held in the audit and the eight corresponding trucking invoice numbers.] Based on this evidence, and absent convincing evidence to the contrary, I must presume that the Taxpayer issued corresponding invoices for the remaining 168 invoices in question to charge for delivery to Virginia job sites. Based on this available evidence and the lack of convincing evidence in support of the Taxpayer's claim, I find no basis to revise this portion of the audit.

CONCLUSION

The audit will be revised in accordance with this determination. An updated bill, with interest accrued to date, will be sent to the Taxpayer. The outstanding balance should be paid within 30 days of the bill date to avoid additional interest charges. The Taxpayer should remit its payment to: Virginia Department of Taxation, Attention: *, 600 E. Main Street, 15th Floor, Richmond, Virginia 23219. If you have any questions concerning payment of the assessment, you may contact at **.

Failure to remit full payment within the 30-day period may result in the imposition of an additional 20% penalty on the tax due under the terms of Virginia's recent amnesty program. See the enclosure entitled "Important Payment Information."

The Code of Virginia section and public document cited 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 Office of Tax Policy, at ***.

Sincerely,

Linda Foster

Deputy Tax Commissioner

AR/1-3997878891.R