Did Virginia double-tax a fabricator's untaxed sales when its customer had already been audited for part of the same period?

Subject

Untaxed sales.

Plain-English summary

A business fabricated metal tanks and performed welding. Virginia assessed sales tax on untaxed tangible-property sales and welding services treated as taxable fabrication under 23 VAC 10-210-560.

The business argued that one customer had already been audited for August 2011 through July 2014 and that including the same sales in the fabricator's audit created double taxation.

Although the customer's transactions appeared in the sample, the audit extrapolation assessed no tax for that overlapping three-year period. It assessed the fabricator only for untaxed sales to the customer from October 2008 through July 2011 and August through September 2014.

Because the audited periods did not overlap in the actual assessment, Virginia found no double taxation and upheld the assessments.

Citations and references

• 23 VAC 10-210-560.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 16-36

Original ruling text

March 24, 2016

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

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you appeal two retail sales and use tax assessments issued to the Taxpayer as a result of an audit for the periods October 2008 through September 2014.

FACTS

The Taxpayer fabricates metal tanks and provides welding services. An audit resulted in the assessment of sales tax on untaxed sales of tangible personal property and untaxed welding services that constituted taxable fabrication in accordance with Title 23 of the Virginia Administrative Code 10-210-560.

The audit includes sales made to * (the "Customer") that are contested. As the accountant for both the Customer and the Taxpayer, you indicate that the Customer was previously audited by the Department for a three-year period (August 2011 through July 2014) that falls within the Taxpayer's audit period. Because such audit included untaxed purchases from the Taxpayer, you believe that double taxation has occurred and request the removal of the duplicated tax from the Taxpayer's audit.

You also indicate that sales by the Taxpayer to the Customer were ongoing for the entire six year audit period of the Taxpayer's audit.

DETERMINATION

A review of the Taxpayer's audit indicates that the sales sample and error factor includes the untaxed sales made to the Customer. While the Customer's untaxed sales are also included in the sample extrapolation for the contested miscellaneous sales, an examination of the enclosed sales sample extrapolation will indicate that no amounts are extrapolated for the periods from August 2011 through July 2014. Thus, no sales tax was assessed to the Taxpayer for untaxed sales made to the Customer for the periods August 2011 through July 2014. All other periods, however, include sales tax on untaxed sales to the Customer. As such, sales tax is assessed on the untaxed sales made to the Customer for the periods October 2008 through July 2011 and August 2014 through September 2014. Accordingly, no double taxation has occurred.

CONCLUSION

Based on this determination, I find no basis for adjusting the contested assessments. Such assessments are correct. Updated bills, with interest accrued to date, will be sent to the Taxpayer. The outstanding balances should be paid within 30 days of the bill date to avoid additional interest charges. The Taxpayer should remit its payment to: Virginia Department of Taxation, 600 East Main Street, 15 th Floor, Richmond, Virginia 23219, Attn: *. If you have any questions concerning payment of the assessments, you may contact at **.

Please note that failure to remit full payment within the 30-day period may result in the imposition of an additional 20% penalty on the tax due under the terms of Virginia's Amnesty Program. See the enclosure entitled "Important Payment Information."

The regulation cited is available on-line at law.lis.virginia.gov in the Virginia law section of Virginia's Legislative Information System. If you have any questions about this determination, please contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns
Tax Commissioner

AR/1-6220956047.R