An auditor is disallowing exemption certificates from several of my automotive customers because some are undated, some are dated well after the sale, and one is from a volunteer fire department -- which of these actually hold up?

Plain-English summary

An automobile dealership and repair shop was audited for sales tax it hadn't collected on numerous customer sales, because the auditor either wasn't given exemption certificates for those customers or found the certificates provided invalid. The dealership appealed and submitted a batch of exemption certificates covering eleven separate customers plus a group of out-of-state buyers, asking the Department to remove all of the related transactions from the audit.

Virginia's rule is that every sale is presumed taxable unless the dealer holds a valid exemption certificate. A certificate missing a date, or dated well after the actual sale, doesn't automatically fail -- but it loses the automatic "good faith" protection a properly-completed, contemporaneous certificate gets, and instead triggers closer scrutiny: the Department will look at whether the customer's actual registered business type matches what was purchased. Applying that standard customer by customer, most of the resale certificates held up: several customers had undated or late-dated forms, but because they were registered Virginia dealers whose business (auto repair, used car sales, wholesale auto auctions, parts and accessories) matched what they'd bought, those transactions were removed from the audit. Two customers failed outright on different grounds: one certificate had no boxes checked and no business description at all, and further investigation showed that customer wasn't even registered to collect Virginia sales tax; a second certificate came from a volunteer fire and rescue company claiming the "for use by the Commonwealth or a political subdivision" exemption, but the Department has already ruled (in an earlier published ruling) that volunteer fire companies don't qualify as instrumentalities of local government for sales tax purposes, so that exemption failed regardless of the certificate's paperwork. Two genuine government-entity certificates -- one from the federal government and one from the Commonwealth -- were accepted under the statutory government exemption.

The dealership separately argued that all sales made through an online marketplace connecting dealerships nationwide should be treated as automatically exempt resales. The Department rejected that blanket approach: the marketplace itself didn't require every purchase to be for resale, so each transaction still needed its own valid exemption paperwork. The out-of-state customers' documentation -- plain IRS Form W-9s and out-of-state exemption certificates that didn't include Virginia's specific required information (business type, registration number, a proper resale statement, and signature certifications) -- fell short of Virginia's minimum content requirements, and the dealership had no proof the Department had ever pre-approved any of those nonresident forms for use. Those transactions stayed in the audit.

What this means for you

Auto dealers and repair shops collecting resale exemption certificates from customers

An undated or late-dated Form ST-10 isn't automatically fatal, but it does shift the burden toward proving the customer's actual business genuinely matches what they purchased and that they're properly registered with Virginia. Get certificates completed and dated AT the time of sale whenever possible to avoid this extra scrutiny entirely.

Dealers doing business with volunteer fire departments, rescue squads, or similar nonprofit public-safety organizations

Don't assume these organizations qualify for Virginia's government-entity sales tax exemption just because they serve a public function. This ruling confirms volunteer fire and rescue companies are NOT treated as instrumentalities of local government for this purpose, based on an earlier published Department ruling.

Dealers selling through multi-dealer online marketplaces

A marketplace's general resale-oriented business model doesn't exempt every transaction automatically. Each sale still needs its own valid, Virginia-compliant exemption certificate -- collect and verify documentation transaction by transaction, not based on assumptions about how the platform generally works.

Anyone accepting out-of-state exemption certificates for Virginia sales

Plain W-9 forms are never sufficient, and an out-of-state certificate must independently satisfy Virginia's specific minimum-content checklist (business type, registration number, proper resale language, signer certifications, and more) -- or have been specifically pre-approved by the Department -- to protect a Virginia sale from tax.

Common questions

Q: Does an undated resale exemption certificate automatically make a sale taxable?
A: Not automatically, based on this ruling -- but it loses the presumption of good-faith acceptance and gets closer scrutiny. If the Department can independently confirm the customer was validly registered and the purchase matches their business type, the certificate can still be accepted.

Q: Are volunteer fire departments exempt from Virginia sales tax as government entities?
A: No. This ruling confirms, citing an earlier Department ruling, that volunteer fire and rescue companies don't qualify as instrumentalities of local Virginia government for sales and use tax exemption purposes.

Q: Can I accept a customer's IRS Form W-9 as proof of a sales tax exemption?
A: No. A W-9 is a request for taxpayer identification information and doesn't contain the specific information Virginia law requires for a valid exemption certificate (business type, registration number, resale statement, signer certification, and more).

Q: What information must a Virginia (or out-of-state) resale exemption certificate include to be valid?
A: At minimum: the purchaser's legal/trade name and address, the type of business, a Virginia (or home-state) registration number, the date signed, the supplier's name and address, a proper resale statement, the signer's title and authorization, a good-faith certification, and a statement that the supplier will retain a copy.

Citations and references

• Va. Code § 58.1-623 A (all sales are taxable until the contrary is established; burden on the dealer absent a valid exemption certificate)
• Va. Code § 58.1-623 B (minimum content requirements for a valid exemption certificate)
• Va. Code § 58.1-609.1 (4) (sales to the Commonwealth, its political subdivisions, and the United States are exempt)
• 23 VAC 10-210-280 A, B (an incomplete, invalid, infirm, or inconsistent certificate is never acceptable; good-faith and reasonable-care standards for exemption certificates)
• P.D. 98-29 (2/20/1998) and P.D. 04-75 (8/25/2004) (absence of a valid certificate at the time of sale means it wasn't accepted in good faith, triggering closer scrutiny)
• P.D. 91-105 (6/28/1991) (an out-of-state dealer can use Form ST-10 with its out-of-state registration number referenced)
• P.D. 97-95 (2/21/1997) (a nonresident-designed exemption certificate must be pre-approved by the Department before use)
• P.D. 20-57 (7/28/2020) (volunteer fire and rescue companies do not qualify as instrumentalities of local Virginia government for sales tax exemption)

Subject

Automobile Dealer Exemption : Sales for Resale - Certificates of Registered Dealers, Out of State Exemption Certificates; Government - Political Subdivision; Nonprofit - Volunteer Fire Department

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-4

Original ruling text

January 11, 2022

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 seek correction of the retail sales and use tax assessment issued for the period October 2013 through December 2016. I apologize for the delay in responding to your letter.

FACTS

The Taxpayer, an automobile dealership and repair shop, made sales of tangible personal property without collecting and remitting Virginia retail sales and use tax. As a result of the Department’s audit, the Taxpayer was assessed sales tax on untaxed sales to customers where the auditor was not provided exemption certificates, or the exemption certificates that were provided were not valid. The Taxpayer filed an appeal including exemption certificates for these customers and requests the related transactions be removed from the audit.

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 or 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, in part:

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 (VAC) 10-210-280 A states, in part, that:

All sales, leases and rentals of tangible personal property are subject to the tax until the contrary is established. 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… However, a certificate that is incomplete, invalid, infirm or inconsistent on its face is never acceptable, either before or after notice.

Title 23 VAC 10-210-280 B requires legitimate use of an exemption certificate and provides that “ [r]easonable care and judgement 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 items of tangible personal property not covered by the exact wording of the certificate”.

In Public Document (P.D.) 04-75 (8/25/2004), the Tax Commissioner cited longstanding policy as set out in P.D. 98-29 (2/20/1998) 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 the audit.

Based on the foregoing authorities, I will address each of the sales referenced in the Taxpayers letter. Each customer listed below purchased various automobile parts from the Taxpayer.

* (“Customer 1”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 1, with the resale exemption box checked. The certificate is undated. Customer 1 describes itself as engaged in auto repair. A certificate with a missing date provides no evidence of good faith acceptance and is subject to closer scrutiny.

According to the Department’s records, Customer 1 is engaged in automotive mechanical and electrical repair and is registered with the Department to collect Virginia sales tax. Customer 1 purchased tangible personal property from the Taxpayer that is consistent with the operation of an automotive mechanical and electrical repair business. Based on these facts, Customer 1 was eligible to claim the resale exemption and these transactions will be removed from the audit.

* (“Customer 2”)

The Taxpayer has furnished two signed resale exemption certificate, Form ST-10, one which is undated, and the second dated August 21, 2017, from Customer 2. Both forms have the resale exemption box checked. Customer 2 describes itself as engaged in automotive repair. Neither exemption certificate is complete. One is missing a date, and thus provides no indication of when the certificate was submitted to the Taxpayer for determining whether it was taken prior to or at the time of sale. The second certificate is dated well after the sales transaction, and therefore cannot be deemed accepted in good faith for transactions occurring before its receipt. In such instances, an exemption claim is subject to closer scrutiny.

According to the Department’s records, Customer 2 is a general automotive repair business and is registered with the Department to collect Virginia sales tax. Customer 2 purchased tangible personal property from the Taxpayer that is consistent with that business operation. Based on Customer 2’s activities, it was eligible to claim the resale exemption and these transactions will be removed from the audit.

* (“Customer 3”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 3, dated May 4, 1993. The purpose for making the exemption claim is not indicated, i.e ., no boxes are checked. No description is furnished in the space provided for describing the kind of business engaged in by Customer 3. Because of the lack of required information, the certificate cannot be deemed accepted in good faith for transactions occurring before its receipt, and is subject to closer scrutiny.

According to the Department’s records, Customer 3 is a used car dealership. Further investigation indicates that Customer 3 is not registered with the Department to collect Virginia sales tax. Under these facts, this certificate is not acceptable for any purchases occurring during the audit period.

* (“Customer 4”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 4, dated August 6, 2018, with the resale exemption box checked. Customer 4 describes itself as engaged in automotive sales and service. The certificate does not contain an address for the Taxpayer and is dated well after the sales transaction, and therefore cannot be deemed accepted in good faith for transactions occurring before its receipt, and is subject to closer scrutiny.

According to the Department’s records, Customer 4 is a used car dealership and is registered with the Department to collect Virginia sales tax. Customer 4 purchased tangible personal property from the Taxpayer that is consistent with that business operation. As a result, Customer 4 was eligible to claim the resale exemption and these transactions will be removed from the audit.

* (“Customer 5”)

The Taxpayer has furnished a signed resale exemption certificate from Customer 5, with the tangible personal property for use or consumption by the United States box checked. The exemption certificate is not dated. At the heading on the face of this certificate appears the following statement: “for use by the Commonwealth of Virginia, a political subdivision of the Commonwealth of Virginia or the United States.” Customer 5 is not one of these government entities. The Department has determined that volunteer fire and rescue companies do not qualify for sales and use tax exemption as instrumentalities of local Virginia governments. See P.D. 20-57 (7/28/2020). Therefore, the contested sales as related to this customer will not be removed from the audit.

* (“Customer 6”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 6, dated May 8, 2018, with the resale exemption box checked. Customer 6 describes itself as engaged in wholesale automobile auctions. The name listed for the dealer on the certificate is different from the name listed in the records of the Taxpayer. The certificate is also dated well after the sales transaction. Accordingly, the certificate is not valid on its face and thus requires closer scrutiny to determine its validity.

According to the Department’s records, Customer 6 is a wholesale trade agent and broker and is registered with the Department to collect Virginia sales tax. Customer 6 purchased tangible personal property from the Taxpayer that is consistent with the operation of a wholesale automobile auction business. Based on these activities, Customer 6 was eligible to claim the resale exemption and these transactions will be removed from the audit.

* (“Customer 7”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 7, dated August 21, 2017, with the resale exemption box checked. Customer 7 describes itself as engaged in auto parts and repair. The certificate is dated well after the sales transactions, and therefore cannot be deemed accepted in good faith for transactions occurring before its receipt and requires closer scrutiny to determine its validity.

According to the Department’s records, Customer 7 is an automotive parts and accessories store and is registered with the Department to collect Virginia sales tax. Customer 7 purchased tangible personal property from the Taxpayer that is consistent with the operation of an automotive parts and accessories business. Consequently, Customer 7 was eligible to claim the resale exemption and these transactions will be removed from the audit.

* (“Customer 8”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 8, dated March 31, 2010, with the resale exemption box checked. Customer 8 describes itself as engaged in auto body repair and refinishing. Based on an examination of the exemption certificate, a dealer could reasonably conclude that the items purchased were for resale as claimed on the exemption certificate. Accordingly, the contested sales as related to Customer 9 will be removed from the audit.

* (“Customer 9”)

The Taxpayer has furnished a signed resale exemption certificate from Customer 9, dated January 2, 2018, with the tangible personal property for use or consumption by the United States box checked. The customer is a political subdivision that enjoys an exemption pursuant to Virginia Code § 58.1-609.1 4. As such, for the purpose of this audit only, the transaction at issue will be removed from the audit.

* (“Customer 10”)

The Taxpayer has furnished a undated signed resale exemption certificate from Customer 10, with the tangible personal property for use or consumption by the Commonwealth of Virginia box checked. The customer is a political subdivision that enjoys an exemption pursuant to Virginia Code § 58.1-609.1 4. As such, for the purpose of this audit only, the transaction at issue will be removed from the audit.

* (“Customer 11”)

The Taxpayer has furnished a signed resale exemption certificate, Form ST-10, from Customer 11, with the resale exemption box checked. The certificate is undated. Customer 11 describes itself as a car dealership. A certificate with a missing date provides no evidence of good faith acceptance and is subject to closer scrutiny.

According to the Department’s records, Customer 11 is an automobile dealership and is registered with the Department to collect Virginia sales tax. Customer 11 purchased tangible personal property from the Taxpayer that is consistent with the operation of a automobile dealership. Thus, Customer 11 was eligible to claim the resale exemption and these transactions will be removed from the audit.

Out-of-State Exemption Certificates

The Taxpayer contends that all sales made through an online marketplace through which dealerships sell and purchase inventory from other dealerships, were made for resale and are, accordingly, exempt from the tax. The online marketplace facilitates the sale of excess inventory between dealerships across the country, but does not maintain that all purchases must be for resale. Therefore, the transactions and related exemption certificates must be evaluated individually to determine whether they should be removed from the audit.

Virginia Code § 58.1-623 sets out the minimum criteria needed for a valid exemption certificate. These criteria include a requirement that an exemption certificate “shall be substantially in such form as the Tax Commissioner may prescribe.” Accordingly, the Department has prescribed Form ST-10 as the certificate of exemption for dealers to use when making purchases of tangible personal property for resale purposes only. In P.D. 91-105 (6/28/1991), the Department allowed the resale exemption for an out-of-state dealer, who was not registered with Virginia, provided it used the Department’s Form ST-10 and appropriately referenced the out-of-state registration number on the ST-10.

Notwithstanding the foregoing, the Department will also accept resale exemption certificates issued by state tax government agencies of other states, provided all of the criteria set out by Virginia Code § 58.1-623 and all of the areas of information vital to the proper giving and receiving of the certificate are met as contained on the Department’s Form ST-10. A resale exemption certificate must contain the following minimum information:

The legal and trade name and physical address of the purchaser;

The type of business engaged in by the purchaser;

The certificate of registration number of the purchaser used by the Virginia Department of Taxation or the registration or account number issued by the purchaser’s state tax agency if the purchaser is not registered to collect Virginia sales and use tax;

The date on which the certificate is signed by the purchaser;

The name and physical address of the supplier;A statement that “all tangible personal property purchased from the named supplier on and after this date will be purchased for resale purposes only, unless otherwise specified on each order, and that this certificate shall remain in effect until revoked in writing by the Virginia Department of Taxation;

The signature and title of the person authorized to sign the certificate;

A statement that “the person signing the certificate is an authorized officer of the corporation if the dealer is a corporation, an authorized partner if the dealer is an unincorporated association, or the owner or authorized member if a sole proprietorship;

A statement certifying that the person signing the certificate is “authorized to sign the certificate of exemption and that, to the best of my knowledge and belief, it is true and correct and made in good faith pursuant to the retail sales and use tax laws of Virginia; and

A statement that the supplier is required to keep and maintain one copy of this resale exemption certificate.

In limited instances, the Department will accept resale exemption certificates or resale affidavits designed by taxpayers, provided all of the criteria set out above are included on the document and the document has been approved by the Department prior to its use for Virginia retail sales and use tax purposes. Accordingly, unless the Taxpayer knows that the Virginia Department of Taxation has previously approved the nonresident resale exemption certificate for use in connection with purchases from Virginia vendors, it should not be used. See P.D. 97-95 (2/21/1997).

The Taxpayer has provided two forms of documentations in support of its claimed exemptions: W-9s for purchasers, and exemption certificates for customers located in ten states. The Form W-9’s are requests for taxpayer identification number and certifications and do not contain the information required by Virginia Code § 58.1-623. The information contained on the provided out-of-state exemption certificates does not meet the requirements of Virginia Code § 58.1-623. In addition, the Taxpayer has provided no documentation that the Department approved the use of the nonresident resale exemption certificates prior to its use. Accordingly, there is no basis to remove these sales from the audit.

The assessment will be revised in accordance with this determination. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer. No additional interest will accrue provided the outstanding assessment is paid within 60 days of the date of the bill.

The Code of Virginia sections, regulations, and public documents 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/1795.A

Related Documents

91-105

97-95

98-29

04-75

20-57