Virginia – Resale Certificates Accepted in Good Faith

SALT Report 2829 – The Virginia Tax Commissioner issued a letter ruling regarding a retailer that made exempt sales to several customers, who used exemption certificates, that an auditor later determined were invalid. The Taxpayer was able to obtain corrected exemption certificates from those customers.  However, one of its customers used its 9-digit federal employer identification number (FEIN) rather than its 15-digit Virginia retail sales and use tax certificate of registration number.

The Taxpayer requested that the corrected exemption certificates, including those with the 9-digit FEIN number be removed from the audit results, claiming that he accepted them in “good faith” as required by Title 23 of the Virginia Administrative Code 10-210-280 A.

In it’s ruling, the Commissioner stated that “the absence of an exemption certificate at the time of a sales transaction or the acceptance of an incomplete or invalid exemption certificate indicates that the certificate was never accepted in good faith.”  Additionally, exemption certificates that are obtained after the start of an audit cannot be considered accepted “in good faith” and are subject to greater review by the Department.

Because of this, exemption certificates obtained after a sale will only be removed from an audit or deemed acceptable if they are complete and valid. The Department must also be able to confirm that the customer’s use of the certificate was valid and appropriate to the specific transaction identified on the certificate.

Upon review of the disputed certificates, the Commissioner stated that the Taxpayer accepted exemption certificates that were otherwise correct, with the exception of the 9-digit FEIN that was used in place of the 15-digit registration number issued by the Department.

Specifically, the customer provided Form ST-10, which limits the exempt purchase of tangible personal property to purchases for resale or for other determined classes of tangible personal property.  The Commissioner stated that the customer used the certificate in a manner that was appropriate to the customer’s business and specific to the transaction.

Therefore, the Commissioner concluded that the use of the FEIN on the resale certificate of exemption, Form ST-10, did not invalidate the good faith acceptance of the certificates because there were no other deficiencies on the certificate.

For Further Information

Virginia Department of Taxation – Ruling of Commissioner, P.D. 13-132