Could a Virginia seller reduce an audit assessment by supplying valid resale certificates after the audit?

Subject

Taxpayer must have valid resale certificates of exemption.

Plain-English summary

Virginia reduced the audit after the seller supplied two resale certificates with its appeal. The photocopying-system manufacturer had made exempt sales without valid certificates in its files. Although the auditor gave additional time during the audit, the seller did not produce the certificates then.

The seller later submitted two certificates supporting contested resale transactions. The auditor reviewed them and revised the assessment. The remaining revised tax and accrued interest still had to be paid within 30 days.

The ruling emphasized that all sales are presumed taxable until the seller establishes otherwise. A protective certificate must contain the purchaser's signature, name and address, registration number if any, and the general character of property covered. A certificate incomplete, invalid, infirm, or inconsistent on its face is never acceptable.

What this means for you

• Obtain and review resale certificates when the customer claims exemption, not after an audit begins.
• Check signatures, addresses, registration numbers, and the property description.
• Virginia accepted the two appeal-stage certificates here, but the ruling did not create a general right to cure every missing certificate late.
• An accepted certificate can reduce an assessment without eliminating the remaining balance or interest.

Common questions

Did Virginia cancel the entire assessment?

No. The auditor revised it for the two supported transactions, and the taxpayer still owed the revised balance plus interest.

Can a facially defective certificate protect the seller?

No. The cited regulation says a certificate incomplete, invalid, infirm, or inconsistent on its face is never acceptable.

Citations and references

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

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-61

Original ruling text

April 15, 2011

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

Dear *:

This will reply to your letter in which you seek correction of the retail sales and use tax assessment issued to * (the "Taxpayer") for the audit period July 2006 through June 2009. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a manufacturer and seller of photocopying systems. The Department's audit disclosed that the Taxpayer made sales of tangible personal property exempt of the tax, some of which were not supported by valid exemption certificates. The Taxpayer is in agreement with the audit results, but contends that certain sales held taxable in the audit were made to retailers that held valid resale certificates of exemption. The Taxpayer was given an additional period of time by the auditor to secure exemption certificates that were not present during the audit, but failed to provide such certificates. The Taxpayer has submitted its appeal of the audit contending that it can provide the required certificates sufficient to revise the Department's assessment.

DETERMINATION

Virginia Code § 58.1-623 A provides that, "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."

Virginia Code 58.1-623 B states, "The certificate mentioned in this section 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. Such certificate shall be signed by and bear the name and address of the taxpayer; shall indicate the number of the certificate of registration, if any, issued to the taxpayer; shall indicate the general character of the tangible personal property sold, distributed, leased, or stored, or to be sold distributed, leased, or stored under a blanket exemption certificate; and shall be substantially in such form as the Tax Commissioner may prescribe."

Title 23 of the Virginia Administrative Code 10-210-280 A provides further instruction regarding the foregoing statute and states that "a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice." Accordingly, for the future, the Taxpayer should ensure that exemption certificates received are complete and adhere to the foregoing requirements.

In this instance, the Taxpayer has submitted two certificates of exemption to support sales that were made exempt of the tax. The Department's auditor has reviewed the certificates and has revised the audit accordingly. The revised balance of the assessment plus accrued interest totals * and must be paid within 30 days from the date of this letter to avoid the accrual of additional interest. Please return your payment for to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Post Office Box 27203, Richmond, Virginia 23261-7203, Attention: **.

The Code of Virginia and regulation sections cited are available on-line in the Tax Policy Library section of the Department's website located at www.tax.virginia.gov. If you have any questions regarding this matter, please contact * at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4474595794.Q