What exemption documents protected a Virginia seller of used semiconductor tools from collecting sales tax?

Subject

Semiconductor tool sales required completed exemption forms and, for an international reseller, an affidavit

Plain-English summary

Virginia ruled that good-faith acceptance of the proper exemption documents could protect the seller from sales-tax collection liability, but it did not confirm that any particular semiconductor tool qualified. The financier was selling repossessed tools to manufacturers and a possible international reseller, with buyers taking possession in Virginia before shipment elsewhere.

For a manufacturer claiming the semiconductor exemption, the buyer could give the seller a completed Form ST-11B stating that the property would be used in an exempt manner. A buyer without a Virginia certificate-of-registration number could write "Not Applicable." The Department could not verify the exemption itself without reviewing the tools and their planned use.

The resale buyer presented a different documentation problem because it was outside the United States and might have no sales-tax registration in any state. Virginia required a completed Form ST-10 plus an affidavit certifying that the purchase was for resale and identifying the name and address of the semiconductor manufacturer that would ultimately buy the property.

Good-faith acceptance of the completed and signed documents relieved the seller from liability for paying or collecting the tax under the facts presented.

What this means for you

• Exemption certificates shift the proof burden only when they are properly completed and accepted in good faith.
• A manufacturing certificate does not independently establish that the buyer's actual use is exempt.
• A missing Virginia registration number did not prevent use of Form ST-11B under this ruling.
• An unregistered international reseller needed extra evidence beyond Form ST-10.

Common questions

What did a semiconductor manufacturer provide?

A completed Form ST-11B describing exempt semiconductor-manufacturing use.

What did the international reseller provide?

A signed Form ST-10 and an affidavit certifying resale and naming and addressing the ultimate manufacturer.

Did Virginia decide that all the tools were exempt?

No. It lacked enough information about the tools and their intended use.

Citations and references

• Va. Code §§ 58.1-612(A), 58.1-623, and 58.1-609.3(14).
• Virginia Public Document 91-105.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-21

Original ruling text

March 26, 2010

Re: Request for Ruling: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request a ruling on the documentation necessary to support a sales and use tax exemption on sales of semiconductor tools in Virginia.

FACTS

The Taxpayer is the financier of semiconductor manufacturing. The Taxpayer is in the process of selling repossessed semiconductor tools to independent third parties. The potential buyers of the semiconductor tools include semiconductor manufacturers that will refurbish the tools for use at their manufacturing facilities located outside the Commonwealth and in other countries. In addition, there is a potential international buyer that plans to purchase and refurbish the semiconductor tools for resale to a semiconductor manufacturer located outside the United States. The potential buyers will take possession of the semiconductor tools in Virginia and are responsible for packaging and shipment of the tools to either out-of-state or overseas locations.

The Taxpayer seeks confirmation that the acceptance of the Department's exemption certificates, Form ST-10 and Form ST-11B, from the potential buyers will relieve the Taxpayer from the collection of the tax on the sale of the semiconductor tools.

RULING

Certificates of Exemption

Subsection A of Va. Code § 58.1-612 requires all dealers to collect and remit the retail sales and use tax on all sales or leases of tangible personal property. Subsection A of Va. Code § 58.1-623 provides the following:

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.

In addition to the above, Va. Code § 58.1-623 B states, "[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."

Semiconductor Manufacturing Exemption

The Taxpayer states that the semiconductor tools being sold were used in a semiconductor manufacturing facility and qualified for the manufacturing exemption. Thus, the Taxpayer believes the sale of the semiconductor tools to another semiconductor manufacturer for similar use will also qualify for the manufacturing exemption.

Virginia Code § 58.1-609.3 14 provides an exemption for:

Semiconductor cleanrooms or equipment, fuel, power, energy, supplies, or other tangible personal property used primarily in the integrated process of designing, developing, manufacturing, or testing a semiconductor product, a semiconductor manufacturing process or subprocess, or semiconductor equipment without regard to whether the property is actually contained in or used in a cleanroom environment, touches the product, is used before or after production, or is affixed to or incorporated into real estate.

Without reviewing the types of semiconductor tools that will be sold or the manner in which they will be used by the potential buyer, I am unable to confirm that the tools qualify for exemption under Va. Code § 58.1-609.3 14. However, if the Taxpayer takes from the potential buyer a completed semiconductor manufacturing exemption certificate, Form ST-11B, indicating that the property being purchased will be used in an exempt manner under the semiconductor manufacturing exemption in Va. Code § 58.1-609.3 14, the Taxpayer will be relieved from any liability for the payment or collection of the tax. The potential buyer may enter "Not Applicable" on the exemption certificate if it does not have a certificate of registration number.

Resale Exemption

Virginia Code § 58.1-623 sets out the minimum criteria needed for exemption certificates. These criteria include a requirement that an exemption certificate "shall be substantially in such form as the Tax Commissioner may prescribe." Accordingly, the Department has prescribed Form ST-10 as the certificate of exemption for dealers to use when making purchases of tangible personal property for resale purposes only. In Public Document (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 appropriately referenced the out-of-state registration number on the ST-10.

In this instance, the potential buyer is located outside the United States and may not be registered for sales and use tax in any state. Because the Form ST-10 requires a registration number, the Department will require additional documentation to support the purchase for resale in this situation. This documentation may be an affidavit certifying that the purchase is for resale and should include the name and address of the semiconductor manufacturer that will purchase the property from the reseller. The good faith acceptance of a completed and signed Form ST-10 and affidavit will relieve the Taxpayer from any liability for the payment or collection of the tax.

This response is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections 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 Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3915359357.T