Virginia – Direct Payment Required for Organization’s Exempt Purchases

2/18/2013

SALT Report 2160 – The Virginia Tax Commissioner issued a ruling regarding sales of tangible personal property to exempt organizations.  The Taxpayer in this case requested guidance regarding the acceptance of exemption certificates from exempt organizations and whether it is necessary to retain proof of payment, such as a copy of the organization’s check or credit card, to verify the exempt sale.

The Department notes that all seller’s must use reasonable care when selling tangible personal property exempt from tax, even if an exemption certificate from the purchaser is on file. Therefore, acceptance “in good faith” must be established before the seller can be absolved from collecting tax. For instance, if the Taxpayer sells an item to an exempt organization that is billed directly to the organization, paid for by the organization’s check or credit card, and the organization provides a fully executed exemption certificate, then that purchase will be exempt from tax.

With regard to government organizations, Virginia Code § 58.1-609.1(4) provides an exemption for “tangible personal property for use or consumption by the Commonwealth, any political subdivision of the Commonwealth, or the United States.”  However, exempt sales can only be made under an official government purchase order or if the purchaser provides the Taxpayer with a valid government exemption certificate, Form ST-12.  Additionally, all purchase orders must show that these purchases are being directly billed to the government agency.

Also, the Department recommends that Taxpayers retain any proof of payment in the event that a question arises regarding an organization’s exempt status.

For Further Information

Virginia Department of Taxation – Ruling of Commissioner PD 13-9