Virginia – Accepting Exemption Certificates

SALT Report 2762 – The Virginia Tax Commissioner issued a ruling regarding the proper use and acceptance of exemption certificates by a Taxpayer who wholesales building supply products. During an audit, it was determined that the Taxpayer made exempt sales that it could not support with valid exemption certificates. However, the Taxpayer was given the opportunity to obtain new, valid certificates from two of these customers.

In the time allotted by the Department, the Taxpayer obtained and submitted a resale exemption certificate from one customer and a manufacturer’s exemption certificate from the other. Because of this the Taxpayer requested that the Department’s audit assessment be revised.

Upon review of the case, the Commissioner stated that the burden of proving that a sale is exempt lies with the dealer. Further, under Title 23 of the Virginia Administrative Code 10-210-280 B, “reasonable care and judgment 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 item of tangible personal property not covered by the exact working of the certificate.”

Based on the above regulation the Commissioner stated that although Customer #1 provided the Taxpayer with resale certificate, it was not valid because the Customer’s address was missing. However, in addition to the exemption certificate, the Customer also gave the Taxpayer a copy of its business license, which did include an address. For this reason, the Commissioner removed the sales from Customer #1 from the audit assessment. However, the Commissioner warned that any future certificates that do not contain all of the information required will not be accepted and the sales related to that certificate will be held taxable.

As for Customer #2, initially, this Customer provided the Taxpayer with a resale certificate that did not have a valid registration number. However, after the audit, the Taxpayer was able to obtain a valid certificate of exemption for manufacturers from this Customer. Because of this the Commissioner stated that they would review the purchases made with this certificate, and if the Customer had properly used the manufacturing certificate the audit assessment would also be revised and these sales would also be removed.

For Further Information

Virginia Department of Taxation – Rulings of the Commissioner PD # 13-117