Did valid resale exemption certificates protect a Virginia dealer from tax on paper and office-supply sales to two customers?

Subject

Timely and complete resale certificates protected the dealer from audit tax

Plain-English summary

Virginia removed the disputed paper and office-supply sales from the audit. The taxpayer distributed business machines, sold photocopies, and provided document-management services. It had accepted resale exemption certificates from two customers whose purchases were later taxed in the audit.

Virginia law generally treats sales as taxable unless the dealer establishes an exemption, but a qualifying certificate can relieve the dealer of collection liability. A certificate that is incomplete, invalid, or inconsistent on its face is never acceptable, and dealers must exercise reasonable care against false or bad-faith certificates.

Here, the certificates were received at the time of purchase, were signed, included the required information, and certified that purchases would be for resale unless otherwise stated on a purchase order. The Department found that the dealer accepted them in good faith, ordered the sales removed from the audit, and directed a refund with interest.

What this means for you

• Obtain resale certificates when the sale occurs, not only after an audit begins.
• Check that each certificate is signed, complete, and consistent on its face.
• A valid certificate can protect the seller unless the Tax Commissioner gives notice that it is no longer acceptable.
• Dealers still must use reasonable care and cannot ignore signs of a false or bad-faith certificate.

Common questions

Why were the certificates accepted?

They were timely, signed, facially complete, and contained the information required by Virginia law.

Did the ruling exempt every sale to those customers?

It removed the identified audited sales covered by the certificates; the certificates themselves allowed a purchase order to specify a different use.

What remedy did the taxpayer receive?

The audit was returned for revisions, and the taxpayer was to receive a refund with interest.

Citations and references

• Va. Code §§ 58.1-612(A) and 58.1-623(A)-(B).
• 23 VAC 10-210-280.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-147

Original ruling text

July 26, 2010

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

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer") in which you seek correction of the retail sales and use tax assessment issued for the period April 2002 through September 2007. I note that the bill at issue has been paid in full. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a distributor of business machines, a retailer of photocopies and a contractor of document management services. The Taxpayer contests the assessment of tax on sales of paper and other office supplies made to its customers for resale. Relying on Title 23 of the Virginia Administrative Code (VAC) 10-210-280 A, the Taxpayer contends that for the sales at issue it accepted in good faith resale exemption certificates from its customers. The Taxpayer contends that line items 2-4 and 6-33 on the Sales Exceptions List should be removed from the audit. These sales were made to two of the Taxpayer's customers, * ("Customer A") and *** ("Customer B").

DETERMINATION

Virginia Code § 58.1-612 A requires all dealers to collect and remit the retail sales and use tax on all sales or leases of tangible personal property.

Virginia Code § 58.1-623 A states, "All sales or leases are subject to the tax until the contrary is established. The burden of proving that a sale, distribution, lease, or storage of tangible personal property is not taxable is upon the dealer unless he takes from the taxpayer a certificate to the effect that the property is exempt under this chapter."

Additionally, Va. Code § 58.1-623 B provides that "[t]he certificate ... shall relieve the person who takes such certificate from any liability for the payment or collection of the tax, except upon notice from the Tax Commissioner that such certificate is no longer acceptable."

Pursuant to Title 23 VAC 10-210-280 A, "a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice." Subsection B of the regulation further provides that "[r]easonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates."

The resale exemption certificates at issue where timely received by the Taxpayer at the time of purchase. Additionally, the resale exemption certificates are signed and bear the information required in Va. Code § 58.1-623. The resale exemption certificates provided by the Taxpayer's customers certify that all tangible personal property purchased from the Taxpayer on and after the date shown on the certificate would be purchased for resale purposes only, unless otherwise specified on a purchase order. Accordingly, the resale exemption certificates at issue were accepted by the Taxpayer in good faith. As such, the exempt sales made to Customer A and Customer B were proper and will be removed from the audit.

Based on this determination, the audit will be returned to the audit staff for the required revisions. The Taxpayer will receive a refund with interest.

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 web site. If you have any questions about this response, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Linda Foster

Deputy Tax Commissioner

AR/1-3145335377.P