When did the Fairfax County Circuit Court say a dealer acted in good faith when accepting a sales-tax exemption certificate?

Subject

Court Case: International Paper Company d/b/a Xpedx v. Virginia Department of Taxation

Plain-English summary

The Fairfax County Circuit Court reduced Xpedx's Virginia sales-tax assessment and stated a two-part good-faith standard for exemption certificates. A dealer could satisfy its burden if either a facial review of the certificate reasonably showed that the purchased items might be used for a claimed exempt purpose, or the dealer's actual knowledge of the purchaser's business reasonably supported the purchaser's intended exempt use.

The court dismissed Count I with prejudice and had already struck Count II. On Count III, it applied the stated exemption-certificate rule and reduced the assessment by $40,936.05, in addition to $2,747.92 conceded during trial. The total reduction was $43,683.97, leaving a final assessment of $103,428.52.

The order incorporated findings and legal conclusions announced at an earlier hearing, but those oral findings are not included in the published text. The document therefore supports the rule and dollar outcomes above without providing the full reasoning behind every part of the case.

What this means for you

• A dealer's good faith could be supported by the certificate's face or by actual knowledge of the purchaser's business and intended use.
• The standard still required reasonable care and judgment; merely possessing a certificate was not the full test stated by the court.
• The court's rule arose from Xpedx's specific assessment challenge and record.
• This is a circuit court order, not a Tax Commissioner ruling or statewide appellate precedent.

Common questions

Did Xpedx eliminate the entire assessment?

No. The order reduced the assessment by $43,683.97 and left $103,428.52.

Why was Count I dismissed?

The order says the reasons were stated at the July 21, 2010 hearing, but the published text does not reproduce them.

Citations and references

• Va. Code § 58.1-1826.
• International Paper Company d/b/a Xpedx v. Commonwealth of Virginia, Department of Taxation, Fairfax County Circuit Court Case No. CL-2009-360.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-258

Original ruling text

VIRGINIA:

IN THE CIRCUIT COURT OF FAIRFAX COUNTY

INTERNATIONAL PAPER COMPANY )

d/b/a Xpedx, )

Plaintiff, )

)

• vs - ) Case No. CL-2009-360

)

COMMONWEALTH OF VIRGINIA )

Department of Taxation, et at., )

)

Defendants. )

FINAL ORDER

This matter comes before the Court on the application for correction of assessment ("application") filed by the plaintiff, International Paper Company, doing business as Xpedx. ("Xpedx"), the answer filed by the defendants, the Commonwealth of Virginia, Department of Taxation and Janie E. Bowen (collectively, "the Department"), the parties' pretrial briefs, the evidence and argument presented by the parties at the trial of this matter held on February 1-3, 2010, and the post-trial briefs submitted by the respective parties. Having previously denied the parties' respective motions for summary judgment and granted the Department's motion to strike Count II of Xpedx's application, the Court, at a hearing held on July 21, 2010, announced its findings of fact and conclusions of law with respect to Counts I and III of Xpedx's application.

For the reasons that the Court stated on the record at the July 21, 2010 hearing in this matter, which shall be adopted by and incorporated into this Final Order, the Court hereby dismisses Count I of Xpedx's application with prejudice.

With respect to Count III of Xpedx's application, the Court hereby adopts and incorporates into this Final Order the findings of fact and conclusions of law pertaining to Count III that the Court announced at the July 21, 2010 hearing in this matter, and adopts the following rule, which the Court has applied to reach its conclusions in this matter.

This Court holds that a dealer can satisfy its burden of good faith and reasonable care and judgment in taking a certificate to the effect that the property purchased is exempt if:
Upon a facial examination of the certificate, a dealer could reasonably conclude that the items purchased could potentially be used for any of the exempt purposes claimed on the certificate of exemption; or

Based upon the actual dealer's knowledge of the business of its purchaser, the dealer could reasonably determine in good faith that the specific purchaser intended to use the items purchased for one or more of the exempt purposes claimed on the certificate of exemption.

Wherefore, based on the foregoing, and pursuant to Code § 58.1-1826; the Court orders that the assessment at issue in this matter shall be reduced as follows:

1. Reduction due to items conceded during trial: $ 2,747.92

2. Reduction resulting from this Court's holding: 40,936.05

Total Reduction in Assessment: $ 43,683.97

Therefore, the final Remaining Assessment is $103,428.52

Nothing further remaining to be done herein, this matter is stricken from the Court's docket, to be indexed among the ended actions at law. Pursuant to Code § 58.1-1826, the Clerk shall certify a copy of this Final Order to the Tax Commissioner. The Clerk shall likewise furnish certified copies this Final Order to counsel of record for the respective parties.

ENTERED THIS 29 DAY OF JULY, 2010.

JUDGE

SUBJECT TO THE DEPARTMENT'S OBJECTIONS

NOTED BY THE COURT, WE ASK FOR THIS:

Cynthia H. Norwood (VSB # 23094)

Senior Assistant Attorney General

Thomas W. Nesbitt (VSB # 73262)

Assistant Attorney General

OFFICE OF THE ATTORNEY GENERAL OF VIRGINIA

900 East Main Street

Richmond, Virginia 23219

Telephone: (804) 786-8192

Facsimile: (804) 692-1647

Counsel of the Commonwealth of Virginia

Department of Taxation

SEEN AND AGREED:

Kenneth H. Silverberg (VSD # 13636)

Cynthia Fleming Crawford (admitted pro hac vice)

NIXON PEABODY LLP

401 9th Street, NW, Suite 900

Washington, DC 20004-2128

Telephone: (202) 585-8322

Facsimile: (866) 947-36931

Counsel for International Paper Company, d/b/a Xpedx

A COPY TESTE:

JOHN T. FREY, CLERK

BY: Lorena Garcia

Deputy Clerk

Date: October 25, 2010

Original retained in the office of

the Clerk of the Circuit Court of

Fairfax County, Virginia