State and Local Taxation

2020 Virginia Department of Taxation Rulings (Part 2)

2020 Virginia Department…

On its website, the Virginia Department of Taxation has released several rulings and appeal decisions. Due to this crazy year and some personnel changes at the Virginia Department of Taxation, the rulings and appeal decisions have been released in batches seemingly. Again, most of what has been posted is not terribly notable. Among several of the appeal decisions are a number where the taxpayer seems to submit little evidence. In one appeal decision, the taxpayer provided invoices written in a foreign language. To be quite honest, this is not a smart tactic. Code of Virginia § 58.1-205 provides that all assessments are deemed to be prima facie correct. That can certainly be overcome. However, what it means is that the mere issuance of an assessment makes the assessment prima facie correct. The taxpayer has the burden of proving that an assessment is incorrect upon appeal. So if a taxpayer has that burden, what good does it do to submit little evidence or something as silly as invoices written in a foreign language? The simple answer is that it does no good. It is a waste of time to appeal an assessment if an argument cannot be put together or it cannot be shown through evidence that the assessment is incorrect. The outcome is the same every time if this is not done. The Tax Commissioner upholds the assessment.

Anyway, a few rulings and appeal decisions are noteworthy as they may affect Virginia taxpayers as they encounter these same issues. A brief summary of some of these notable rulings and appeal decisions follows.

  • Public Document (P.D.) 20-54 is important not for what it says but rather what it doesn’t say. The United States Congress enacted a protection for businesses who merely solicit sales in other states so that they would not be subject to income taxes in those states. This protection is commonly referred to as Public Law 86-272. This ruling states that the taxpayer exceeded solicitation and was not protected. The issue with the ruling is that it is light on facts. How was solicitation exceeded?
  • One appeal decision (P.D. 20-74) raises a very common issue. Sellers (vendors) will accept incomplete or facially invalid exemption certificates from customers. When the vendor gets audited, there is almost a 100% chance that they will be assessed with not collecting the correct amount of sales tax. Sales and use tax is form over substance. It may not matter that the customer is exempt, what matters most is that the seller collects the correct certificate.
  • In P.D. 20-88, the Tax Commissioner determined that a distillery must pay BPOL tax on the gross receipts that it receives from its tasting room. The manufacturing operations of that distillery do not exempt gross receipts from the tasting room.

Christian Tennant is a Virginia tax attorney and former employee of the Virginia Department of Taxation. Mr. Tennant regularly speaks and writes on Virginia taxation. In his private practice he advises and represents businesses and individuals on a range of tax matters.

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