Must a Virginia auctioneer collect sales tax on storage-unit lien auctions, and did later Live Chat advice cancel the audit liability?

Subject

Tax assessment based on the estimated untaxed sales of tangible personal property.

Plain-English summary

Storage-unit lien auctions conducted by the taxpayer were subject to Virginia sales tax. The taxpayer operated an auction company and used-car dealership and had not filed sales-tax returns during the audit period. The Department estimated untaxed tangible-property sales from available banking and tax-return information, while agreeing that the audit would be revised using backup records the taxpayer later supplied.

The auction sales did not qualify for the occasional-sale exemption. Virginia's auctioneer regulation generally requires an auctioneer to collect tax even when someone else owns the property, and the narrow exception for selling substantially all assets of a liquidating or reorganizing business did not fit these lien sales.

The taxpayer also could not obtain abatement based on Department advice. The earlier alleged oral advice was not documented in writing, and a later Live Chat answer came after the audit period, so the taxpayer could not have relied on it during that period. The post-amnesty penalty would be recalculated with the revised assessment and abated if the revised tax and interest were paid within 30 days; the ruling also allowed possible waiver after successful completion of a payment plan.

What this means for you

• Auctioneers generally collect Virginia sales tax on taxable tangible property sold at auction, including lien sales.
• An auctioneer cannot ordinarily treat its recurring auction business as making occasional sales.
• Erroneous-advice relief requires qualifying written advice that the taxpayer actually relied on for the same facts and period.
• Later advice cannot establish reliance during an earlier audit period.
• Conditional penalty relief does not erase the underlying revised tax and interest.

Common questions

Why did the occasional-sale exemption not apply?

The taxpayer was acting as an auctioneer, and the storage-unit lien sales were not shown to be sales of substantially all assets of a liquidating or reorganizing business.

Was the Live Chat response treated as a binding ruling?

No. Although it was written, it was given after the audit period and therefore was not relied on when the audited sales occurred.

Was the original estimated assessment left unchanged?

No. The Department said it would revise the audit based on backup documents already provided, then issue an updated bill.

Citations and references

• Va. Code §§ 58.1-618, 58.1-1835, 58.1-1845(4), and 58.1-1840.1(F)(1).
• 23 VAC 10-210-140(A)-(B).
• Virginia Tax Amnesty Guidelines § VI and P.D. 09-140, cited in the ruling.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-247

Original ruling text

October 28, 2010

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

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessment issued to you (the Taxpayer) as a result of an audit for the period October 2003 through September 2009.

FACTS

The Taxpayer is a sole proprietor that operates an auction company and a used car dealership. The Taxpayer failed to file sales tax returns during the audit period. Pursuant to Va. Code § 58.1-618 and the available banking and tax return information, the auditor issued a sales tax assessment based on the estimated untaxed sales of tangible personal property occurring during the audit: period.

The Taxpayer contends that a big portion of the assessment is not subject to the retail sales tax because it includes automobile sales subject to the motor vehicle sales and use tax. The Taxpayer prepared and submitted the omitted sales and use tax returns to the Department showing taxable sales for a number of months. The auditor subsequently met with the Taxpayer and reviewed back-up documents to support a revision to the audit. Such revision is pending the outcome of this determination.

The Taxpayer further contends that it was previously told by a Department employee that tax was not applicable to bulk sales of storage units sold via lien auctions because the items had already been taxed when new and, therefore, no sales tax was collectible upon the sale of such units. Most recently, the Taxpayer contacted the Department via the Live Chat feature on the Department's website. The Taxpayer submitted a question to Live Chat asking whether the sales tax applies to the tangible contents of a storage unit that is auctioned off to enforce a lien against the rent for the storage unit when the account becomes delinquent. The storage unit is auctioned off as a whole to enforce the lien. The Department's response via Live Chat was that the transaction was considered a one-time sale and not subject to sales taxation. The Taxpayer now contends that this Live Chat response constitutes an official, binding ruling of the Department.

DETERMINATION

Auctioneers

Subsection A of Title 23 of the Virginia Administrative Code (VAC) 10-210-140 states, "Auctioneers, agents or factors selling tangible personal property must collect and pay the sales tax on the gross sales price of each taxable sale, regardless of the fact that title to the property being sold may rest with another person." Subdivision 1 of subsection B of Title 23 VAC 10-210-140 further provides, "Except as provided in subdivision 2 of this subsection, an auctioneer, factor or agent cannot make an 'occasional sale' of tangible personal property because his business is the sporadic and occasional sale of property." In such instances, the auctioneer must collect the tax on all sales including estate sales and similar sales of short duration. Subdivision 2 of subsection B of Title 23 VAC 10-210-140 sets out an exception to the tax rule that an auctioneer who sells substantially all of the assets of a liquidating or reorganizing business, such as over a two-day period, is deemed engaged in an occasional sale.

Based on the facts presented, I must conclude that the lien sales at issue do not qualify for the occasional sale exemption. Such sales are made by an auctioneer, i.e. , the Taxpayer. Furthermore, there is no evidence that such sales are for the sale of substantially all of the assets of a liquidating or reorganizing business. Based on the above cited regulation, the Taxpayer is responsible for the collection and remittance of sales tax on such lien sales, as well as any other sales of tangible personal property that are subject to retail sales and use taxation.

Erroneous Advice

Virginia Code § 58.1-1835 provides that the Tax Commissioner shall abate any portion of tax, interest and penalty attributable to erroneous written advice by the Department under the following conditions:

1. The written advice was reasonably relied upon by the taxpayer and was in response to a specific written request by the taxpayer;

2. The portion of the penalty or tax did not result from a failure by the taxpayer to provide adequate or accurate information; and

3. The facts of the case described in the written advice and the request therefor are the same, and the taxpayer's business or personal operations have not changed since the advice was rendered.

Furthermore, subsection 4 of Va. Code § 58.1-1845 sets out the Virginia Taxpayer Bill of Rights. One of those guaranteed rights is for:

The right to abatement of tax, interest, and penalties, in accordance with § 58.1-1835, attributable to any taxes administered by the Department, when the taxpayer reasonably relies upon binding written advice furnished to the taxpayer by the Department through authorized representatives in response to the taxpayer's specific written request which provided adequate and accurate information.

Based on the above statutory provisions, the erroneous advice must be reasonably relied upon by the Taxpayer, and such advice must be in writing. In addition, such advice must provide for sufficient and accurate facts so that the Department may issue a correct decision. In regard to the initial advice allegedly given by the Department, the Taxpayer has not furnished any written proof from the Department that sets out the essential facts and conclusions as a result of a conversation held with an employee of the Department. Absent such written proof, it is not possible to conclude that the Taxpayer reasonably relied upon erroneous advice from the Department during the audited period.

In regard to the Live Chat response provided by the Department, the Taxpayer provides written proof of erroneous advice given by an employee of the Department, but such advice was offered after the close of the audit period. Therefore, it was not reasonably relied upon by the Taxpayer at any time during the audit period. As such, it does not satisfy all of the statutory criteria to allow for partial or full abatement of the assessment.

Post-Amnesty Penalty

In accordance with Va. Code § 58.1-1840.1 F 1 and section VI of the Virginia Tax Amnesty Guidelines [Public Document 09-140 (9/28/09)], a 20°% post-amnesty penalty was added to the assessment on April 8, 2010 for non-payment of the assessment within the 30 day period allowed for payment of the assessment. Because the audit will be revised and some of the initial tax amount will be abated, the post-amnesty penalty will likewise be revised to apply only to the revised tax amount.

I do not find basis at this time, however, for waiving the entire post-amnesty penalty. Pursuant to subsection VI (6) of the amended Virginia Tax Amnesty Guide lines, no post-­amnesty penalty applies to:

Any assessment generated from a field audit of a business for an amnesty eligible period, provided that the audit is TAX's first audit of the taxpayer, no penalty has been applied to the tax deficiency, any uncontested liability is paid within 30 days from the date of assessment, and payment for any contested liability remaining upon resolution of an appeal under Va. Code §§ 58.1-1821 or 58.1-1825 is paid within 30 days from the date of the Tax Commissioner's or the court's final determination.

The Taxpayer must meet all four conditions to avoid the post-amnesty penalty or to have it waived after it is imposed. This audit was the Department's first audit of the Taxpayer for sales and use tax purposes. No penalty was initially assessed. Because the Taxpayer was contesting the entire tax assessment, there was no uncontested tax to be paid within 30 days of the date of assessment. Accordingly, I will waive the revised post-­amnesty penalty provided the Taxpayer pays the revised tax and associated interest within 30 days of the bill date of the revised bill (see below).

CONCLUSION

The assessment will be revised based on the back up documents previously furnished to the auditor. A revised and 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.

If full payment of the revised tax and interest is paid within 30 days of the bill date, the post-amnesty penalty will be abated. If the Taxpayer cannot make such full payment, it may enter into a payment plan with the Department's Collections Section at (804) 367-8045. In such an event, the penalty may be waived upon successful and timely completion of the payment plan.

The Code of Virginia sections, regulation and the 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 determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Acting Tax Commissioner

AR/1-4388453959.R