Was a promotional distributor's DVD sale exempt when the customer supplied a Virginia ST-10A certificate accepted in good faith?

Subject

Good-Faith ST-10A Certificate for Promotional DVDs

Plain-English summary

A promotional-products distributor sold DVDs containing information for a customer's advertising campaign. After the distributor supplied additional documentation, Virginia found that the DVDs qualified under the customer's ST-10A exemption certificate.

The DVDs fit block one of the certificate and also would have qualified under block four. A dealer that accepts a facially valid exemption certificate in good faith shifts the burden of proving taxability, so Virginia removed the invoice from the audit.

Citations and references

• Va. Code §§ 58.1-609.6(4) and 58.1-623 A.
• 23 VAC 10-210-280 A.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-152

Original ruling text

August 24, 2017

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 February 2011 through June 2013. I apologize for the delay in responding to your appeal.

FACTS

The Taxpayer is a promotional products distributor. The Department's audit disclosed that the Taxpayer made exempt sales that were not supported by valid exemption certificates or did not meet the wording of the exemption certificates. The Taxpayer disagreed with the application of the tax to three specific invoices. The Taxpayer presented with its protest documentation to support the exemption of two specific sales. These sales were removed from the Department's audit, and the Taxpayer was instructed to provide additional documentation to support its claim that the third invoice was exempt from the tax. The Taxpayer has submitted the additional documentation and seeks an adjustment to the audit.

DETERMINATION

Invoice # 2324989

Virginia Code § 58.1-609.6 4 provides an exemption for:

Catalogs, letters, brochures, reports, and similar printed materials, except administrative supplies, the envelopes, containers and labels used for packaging and mailing same, and paper furnished to a printer for fabrication into such printed materials, when stored for 12 months or less in the Commonwealth and distributed for use without the Commonwealth. As used in this subdivision, “administrative supplies” includes, but is not limited to, letterhead, envelopes, and other stationery; and invoices, billing forms, payroll forms, price lists, time cards, computer cards, and similar supplies.

Based on a review of the information provided and the cited statute, the DVDs that were sold contain information for use by the purchaser in promoting their advertising campaign. With regard to the acceptance of the ST-10A exemption certificate, the DVDs qualify for exemption under block one of the certificate and would also qualify for exemption if block four was marked. In either instance, the Taxpayer's acceptance of the ST-10A exemption certificate when taken in good faith is valid for purchases by such customers.

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.

Title 23 of the Virginia Administrative Code 10-210-280 A further states, “The burden of proving that the tax does not apply rests with the dealer unless he takes, in good faith from the purchaser or lessee, a certificate of exemption indicating that the property is exempt under the law.” [Emphasis added]

Based on the additional information provided, I find sufficient cause to remove invoice # 2324989 from the Department's audit. The audit will be returned to the appropriate field audit staff for revision. A revised audit report and assessment will be issued once the revision is completed.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1095.Q