Could a building-supply wholesaler obtain further Virginia audit relief with a resale certificate missing an address and a later manufacturer certificate?

Plain-English summary

Virginia allowed one additional certificate adjustment and made another conditional on auditor verification. The building-supply wholesaler had made exempt sales without valid certificates at the time of sale and obtained customer documentation during and after audit.

Customer 1's Form ST-10 omitted the customer's address. The customer also supplied business-license information showing an address that matched Department records. Virginia accepted that corroboration for this audit and removed the sales, but warned that future incomplete certificates would be rejected.

Customer 2 had first supplied invalid resale certificates, then produced a Form ST-11 manufacturer exemption after audit. The new form appeared correct, but the auditor still had to verify that the customer's actual use fit the certificate before removing those sales.

Virginia emphasized that certificates missing or invalid at the time of sale were not accepted in good faith. Later replacements were subject to greater scrutiny and had to be valid for the specific audited transaction.

What this means for you

• Obtain a complete certificate at the time of sale rather than relying on audit-period replacements.
• Check signatures, addresses, registration numbers, property descriptions, and the exact exemption claimed.
• Supporting official records may cure a narrow defect in a particular audit, but the ruling warned against relying on that outcome later.
• A facially correct manufacturer certificate still requires proof that the customer's use fits the exemption.

Common questions

Q: Why was the address-defective ST-10 accepted?
A: Business-license information supplied the address and matched the Department's records.

Q: Would Virginia accept future certificates missing an address?
A: The ruling expressly said future incomplete certificates would not be allowed.

Q: Was the Form ST-11 automatically accepted?
A: No. The auditor had to verify the customer's use before adjusting the audit.

Q: Why were later certificates reviewed more closely?
A: A certificate absent or invalid at the sale was not considered accepted in good faith.

Citations and references

• Va. Code § 58.1-623 A-B.
• 23 VAC 10-210-280 B.
• Virginia Public Documents 98-29 and 04-75.

Subject

Exempt sales not supported by valid exemption

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 13-117

Original ruling text

June 27, 2013

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 period August 2008 through June 2011. I apologize for the delay in responding to your request.

FACTS

The Taxpayer is a wholesaler of building supply products. The Department's audit disclosed that the Taxpayer made exempt sales that were not supported by valid exemption certificates. The Taxpayer was given an opportunity to secure valid certificates from its customers. Based on the certificates acquired and presented and their verification by the auditor, the Department's audit was revised. The Taxpayer has submitted additional documentation with its appeal, stating that one customer has provided a valid resale exemption certificate and another customer has presented a valid manufacturer's exemption certificate. The Taxpayer seeks further revision of the Department's assessment.

DETERMINATION

Virginia Code § 58.1-623 A states 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 the Retail Sales and Use Tax Act in Title 58.1 of the Code of Virginia .

Virginia Code § 58.1-623 B states:

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 under a blanket exemption certificate; shall be substantially in such form as the Tax Commissioner may prescribe.

Title 23 of the Virginia Administrative Code 10-210-280 B states that, "Reasonable care and judgment must be exercised by all concerned to prevent the giving or receiving of false, fraudulent or bad faith exemption certificates. An exemption certificate cannot be used to make a tax free purchase of any item of tangible personal property not covered by the exact working of the certificate."

In Public Document (P.D.) 04-75 (8/25/04), the Tax Commissioner cited long­standing policy as set out in P.D. 98-29 (2/20/98) that the absence of a valid exemption certificate at the time of a sales transaction indicates that the certificate was never accepted in good faith. In such instances, the exemption certificates are subject to greater scrutiny by the Department and are acceptable only if the Department is able to confirm that a customer's use of the certificate was valid and proper for a specific transaction identified during audit.

Based on the foregoing authorities, I will address each of the sales referenced in the Taxpayer's letter.

Customer 1

The Taxpayer has presented its customer's Form ST-10 resale certificate of exemption. The certificate is not complete on its face to the extent that the customer's address is not listed. However, along with the exemption certificate, the customer submitted to the Taxpayer a copy of its business license information reflecting its address in that locality. The customer's information relates to the address listed in the Department's records. Accordingly, I will allow for the removal of the sales to this customer from the audit's sales exception list. This will result in an adjustment to the Department's assessment.

Please note, however, that future certificates that do not contain all of the information required by the above noted authorities will not be allowed and the sales will be held taxable. The Taxpayer must instruct its customer to comply with the required information when presenting its resale exemption certificates.

Customer 2

In this instance the customer initially presented the Taxpayer with Form ST-10 resale exemption certificates that did not have valid registration numbers. After the audit was completed, the customer presented the Taxpayer with the Form ST-11 certificate of exemption for use by manufacturers. While the ST-11 appears correct, I will have the Department's auditor verify the use of the exemption certificate. Accordingly, if the customer's use of the certificate is valid, the Department's audit will be revised to remove these sales as well.

CONCLUSION

The audit will be returned to the audit staff to make the adjustments consistent with this determination. An updated bill, with interest accrued to date, will be mailed to the Taxpayer once the audit adjustments are complete. No additional interest will accrue provided the outstanding assessment is paid within 30 days from the date of the revised bill.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-5284149844.Q