Did an IT company's refund claim for aircraft and retail sales and use tax paid on its March 2008 return succeed?

Subject

Refund denial; Statute of Limitations

Plain-English summary

An information technology company headquartered in Virginia asked the Tax Commissioner to correct a refund denial. The Taxpayer said that when its headquarters relocated to Virginia in 2008 (with an aircraft moving into a Virginia hangar), it mistakenly remitted aircraft sales and use tax as a use tax on its March 2008 retail sales and use tax return. It sought a refund of that amount, calculated from the approximate value of a similar aircraft at the time of purchase.

The Tax Commissioner upheld the refund denial. The Department found no activity on the Taxpayer's aircraft tax account since it was opened in June 2010 and no record of any aircraft sales and use tax payment on a Virginia-based aircraft. The amount the Taxpayer said it remitted on its March 2008 return did not match what the Department's records showed, and the Department could not reconcile the figures given the different tax rates involved (2% for aircraft tax versus a 5% use tax rate in 2008). When audit staff asked for a bill of sale, tax return, or supporting calculations, the Taxpayer supplied only invoices; on appeal it added aircraft registration information and sales documents for a replacement aircraft purchased in 2012, but still never produced the aircraft sales and use tax return or documentation showing the claimed tax amount. Because there was no evidence the March 2008 payment was actually aircraft tax, the Department treated the claim as a retail sales and use tax refund request -- and that request came far too late. Under Va. Code § 58.1-1823 and Title 23 VAC 10-210-3040, a refund or amended return must be filed within three years of the return's due date; the March 2008 period was well outside that three-year window by the time the claim was pursued. The refund denial was upheld.

What this means for you

Refund and amended-return deadlines are strict

Virginia's three-year statute of limitations for refunds and amended returns, set out in Va. Code § 58.1-1823 and Title 23 VAC 10-210-3040, runs from the due date of the original return. This ruling shows the Department will enforce that deadline even where a taxpayer believes it can show an overpayment -- if the claim is not timely, the underlying merits may never be reached (or, as here, the merits and the timeliness problem both work against the taxpayer).

Keep the paperwork that actually proves your tax position

The Taxpayer's core problem was documentation. Opening an aircraft tax account, providing invoices, or supplying registration and sales records for an unrelated later purchase did not substitute for the actual tax return, bill of sale, or calculation showing what aircraft sales and use tax (if any) was paid on the original aircraft. Businesses that relocate aircraft, equipment, or other taxable property into Virginia should retain the specific return filed, the payment record, and supporting calculations, since general account activity or circumstantial documents will not establish that a specific tax was paid or overpaid.

Aircraft tax and retail sales/use tax are separate regimes with different rates

The ruling highlights that Virginia's aircraft sales and use tax (2% under Va. Code § 58.1-1502) and the general retail sales and use tax (5% at the time) are distinct taxes with different rates. A taxpayer claiming it paid one tax when its return reflects a different rate or tax type should expect the Department to require clear proof reconciling the two before granting any refund.

Common questions

Q: Did the Taxpayer get its refund?
A: No. The Tax Commissioner upheld the Department's denial of the refund request.

Q: Why didn't the Department treat the payment as an overpayment of aircraft sales and use tax?
A: The Taxpayer's aircraft tax account showed no activity since it was opened in June 2010 and no record of any aircraft sales and use tax payment, the amount claimed did not match the Department's records of the March 2008 return, and the Taxpayer never provided the aircraft sales and use tax return or supporting calculations despite being asked for them during the audit and on appeal.

Q: Why was the retail sales and use tax refund claim denied even though the Taxpayer may have overpaid?
A: Because there was no proof the March 2008 payment was aircraft tax, the Department treated it as a retail sales and use tax refund request. Under Va. Code § 58.1-1823 and Title 23 VAC 10-210-3040, such a request must be made within three years of the return's due date, and the March 2008 period was outside that window.

Q: What documents did the Taxpayer provide, and why weren't they enough?
A: The Taxpayer provided invoices during the audit and, on appeal, aircraft registration information plus sales documents for a replacement aircraft purchased in 2012. None of these showed the aircraft sales and use tax return for the original aircraft or supported the specific amount claimed as overpaid tax.

Q: What tax rates were at issue?
A: The aircraft sales and use tax rate under Va. Code § 58.1-1502 is 2% of the sale price (or, for aircraft licensed six months or more after acquisition, 2% of the lower of market value at licensing or purchase price). The general use tax rate in 2008 was 5%. The mismatch between these rates was part of why the Department could not reconcile the Taxpayer's claimed payment.

Q: Is there any exception to the three-year refund deadline shown in this ruling?
A: No. The ruling applies the three-year limitations period in Va. Code § 58.1-1823 and Title 23 VAC 10-210-3040 without describing any exception, and the refund request for the March 2008 period was denied as untimely.

Citations and references

Statutes:

• Va. Code § 58.1-1502 (aircraft sales and use tax levy and rate)
• Va. Code § 58.1-1821 (application for correction of assessment/refund)
• Va. Code § 58.1-1823 (three-year deadline to file amended return or refund claim)
• Title 23 VAC 10-210-3040 (refunds of sales tax to dealers; three-year limitations period)

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 21-7

Original ruling text

February 2, 2021

Re: § 58.1-1821 Refund Application

Aircraft Sales and Use Tax and Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the “Taxpayer”), in which you seek correction of a refund denial issued by the Department. I apologize for the delay in responding to your correspondence.

FACTS

The Taxpayer is an information technology service provider with its headquarters in Virginia. The Taxpayer was originally based outside of Virginia and moved into Virginia in 2008. The Taxpayer claims that when its headquarters relocated to Virginia, an aircraft was relocated to a hangar within Virginia. The Taxpayer claims it mistakenly remitted the aircraft sales and use tax as a use tax on its retail sales and use tax return for March 2008. The Taxpayer requests a refund of the use tax in the amount of $* that it claims is computed based on the approximate value of similar aircraft at the time the aircraft in question was purchased.

DETERMINATION

Virginia Code § 58.1-1502 levies tax on aircraft as follows:

There is hereby levied and imposed, in addition to all other taxes and fees of every kind now imposed by law, a tax upon the retail sale of every aircraft sold in the Commonwealth and upon the use in the Commonwealth of any aircraft required to be licensed by the Department of Aviation pursuant to § 5.1-5. The amount of the tax to be collected shall be determined by the application of the following rate against the sales price or gross receipts:

Two percent of the sale price of each aircraft sold in the Commonwealth.

Two percent of the sale price of each aircraft not sold in the Commonwealth but required to be licensed for use in the Commonwealth. However, if the aircraft is licensed in the Commonwealth six months or more after its acquisition, the tax shall be two percent of the market value of such aircraft at the time it is licensed or two percent of the purchase price thereof, whichever is lower.

In accordance with the cited statute, the Taxpayer was required to remit the aircraft sales and use tax to the Department at a rate of 2% once the aircraft was located within Virginia.

The Taxpayer requests a refund of the use tax payment based on the assertion that it opened an aircraft tax account. The Taxpayer contends it is impossible to open an aircraft tax account without paying the aircraft sales and use tax. Thus, the open account should serve as evidence of the overpayment remitted on their 2008 retail sales and use tax return. It is noted that in 2008, the use tax rate was 5%.

The Taxpayer’s aircraft account with the Department shows no activity since its opening in June 2010 and there is no record of any payments of aircraft sales and use tax on any aircraft located in Virginia. Upon review of the March 2008 retail sales and use tax return, the Taxpayer remitted $*, not $. The Department has no record of a payment in the amount of $** made by the Taxpayer. Also the Department is unable to reconcile these amounts given the differing tax rates.

Upon receiving the refund request from the Taxpayer, the audit staff requested several documents to confirm the Taxpayer’s contention that the tax had been erroneously paid. The documents requested were the original bill of sale or invoice showing the Taxpayer’s purchase of the aircraft, documentation supporting the calculation of any remitted tax, a copy of the aircraft sales and use tax return filed for the aircraft, and various invoices relating to the return in question. The Taxpayer provided invoices for transactions, but did not provide any additional documentation to the auditor and the refund was denied. Upon appeal, the Taxpayer was provided registration information for the original aircraft in addition to sales documents for an aircraft that replaced the aircraft at issue in 2012. The Taxpayer has not, however, provided the aircraft sales and use tax return to show tax has been paid, nor is there support for the amount claimed as aircraft sales and use tax.

Further, the Taxpayer requests a refund of the Virginia retail sales and use tax, contending the tax remitted was, in actuality, aircraft sales and use tax. As there is no evidence the tax remitted on the March 2008 return is aircraft sales and use tax, nor is there evidence of aircraft sales and use tax remitted to the Department by the Taxpayer at any time, the Department must treat this as a retail sales and use tax refund request.

Virginia Code § 58.1-1823 states in pertinent part that “Any person filing a tax return or paying an assessment required for any tax administration by the Department of Taxation may file an amended return…three years from the last day prescribed by law for the timely filing of the return….” Title 23 of the Virginia Administrative Code 10-210-3040 addresses the refund of sales tax to dealers and provides, in pertinent part, that “Refunds cannot be authorized unless the request is made within three years from the due date of the return.”

The Taxpayer’s retail sales and use tax refund request is for the period March 2008. Pursuant to the aforementioned authorities, a refund cannot be authorized for this period as it exceeds the statute of limitations regarding the refund of the Virginia sales tax or Virginia use tax. Based on the facts and circumstances of this case, the refund denial is upheld.

The Code of Virginia and regulation sections cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact * in the Department’s Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/2191L