Sales Taxes...GOTCHA

MikePA · Mar 8, 2004

While it's the dealer's responsibility to collect the tax, you might want to visit the Virginia Department of Taxation web site. Specifically, even if the out of state sale, to you as a resident of Olney, MD, was legit then following would appear to apply. The bolding is mine.

IOW, no matter how you cut it, the tax should have been remitted to VA. Either by the dealer or by you since you brought the asset into VA within 6 months of it's purchase.

Of course, in order for you to pay the tax, you would have to fill in the form stating your residence was in MD and now it's in VA.

My advice, send a registered letter, return receipt requested, to the dealer indicating that the enclosed check is for the sales tax on the tractor. Include a copy of your sales receipt to show you are paying 3.5% of the total sale price.

As Sir Walter Scott said, "Oh what a tangled web we weave, When first we practise to deceive! ."

§ 58.1-604. Imposition of use tax

There is hereby levied and imposed, in addition to all other taxes and fees now imposed by law, a tax upon the use or consumption of tangible personal property in this Commonwealth, or the storage of such property outside the Commonwealth for use or consumption in this Commonwealth, in the amount of three and one-half percent:

1. Of the cost price of each item or article of tangible personal property used or consumed in this Commonwealth. Tangible personal property which has been acquired for use outside this Commonwealth and subsequently becomes subject to the tax imposed hereunder shall be taxed on the basis of its cost price if such property is brought within this Commonwealth for use within six months of its acquisition;

crown · Mar 8, 2004

Don't feel bad I bought my tractor in WVA only 20 minutes from my house, I thought I could pull one over on the Commonwealth and did so for about a year when the tax bill arrived in my mail box I paid it and chalked it up to a lesson learned, fortuantly in my case it was the dealer I would have choosen regaurdless of the tax issue.

puter · Mar 9, 2004

Duane -

My familiarity is with NY's sales tax procedures, but I assume VA is similar. Your dealer, by state law, is likely obligated to collect and remit sales tax for all taxable purchases except those for which he has received a valid exemption certificate. The sales tax guys can and will hold him responsible for all of the taxes that were supposed to be collected.

That said, YOU are obligated to pay the sales or use tax on the purchases you make. If you can't demonstrate that you paid the tax required on a taxable purchase, you're on the hook.

I work with a guy that liquidates assets seized through the sales tax compliance division. For ~$700 you don't want to take even the remote chance of being on the receiving end of the compliance division's guns... particularly if there's a document out there you signed that can be construed as an attempt to evade taxes.

My suggestion: have the dealer send you a corrected invoice showing what you've already paid and the tax due. Then pay what you owe.

You don't have any other good way out. The key document here is your invoice... if it doesn't show tax being paid on a taxable purchase you're out of luck. It doesn't matter what the dealer said since he has no power to supercede state law.

You could take the dealer to small claims court to recover the sales tax amount, claiming your understanding was that the amount you paid was inclusive of sales tax. But without something written to that effect, and the wrong address on the invoice.... my guess is the judge won't spend 10 seconds on your case.

OkeeDon · Mar 9, 2004

I have a story to tell about state taxes that points out why business owners should traipse the straight and narrow. It's complicated, but I'll try to shorten it.

One of my best friends ran a convenience store and small strip shopping center with a financial partner who was not sophisticated. The partner did not understand accounting and filed a frivolous suit against my friend for mismanagement. My friend counter-sued. During the year-long trial, the Judge forbade either of them from running the store and appointed a trustee to operate it. The trustee failed to pay any state or federal taxes - payroll, unemployment, sales, alcohol and gasoline among them. The Judge failed to adequately monitor the trustee, who pocketed the money.

My friend won the suit and was awarded his partner's share in the business as a judgment. When he resumed operation of the store, he discovered the non-payments and theft. The trustee left the country. The indebtedness was several hundred thousand dollars.

The government agencies did not care about the circumstances; they wanted their money. My friend entered into installment plans and successfully paid off all the federal agencies and some of the state agencies. All that was left was the department of revenue, which handled sales tax. This process took several years, during which my friend voluntarily sold his luxury home, his 32' sport fishing boat and many other assets in order to make these payments.

The sales tax people decided they didn't want to wait any longer for their money, and refused to enter into an installment plan. My friend attempted to sell the shopping center, which had enough equity to cover the amount, but he had fallen behind in the mortgage payments while trying to pay the taxes. The mortgage company foreclosed on the property. The foreclusure sale only brought enough to cover the mortgage. He tried to fight his way out, but the relentless pressure and the refusal to listen to reason finally depressed him to the point where he simply quit coping.

He was arrested, tried and sentenced to two years in jail. He served 11 months and was released to a halfway house on a work release plan. I hired him during that period, and he stayed with me after his subsequent release a few months later. Having him in the business was a daily reminder that all laws must be followed all the time, without exception or temptation. I was absolutely certain that none of the employees, who all knew the story, would even dream of trying to "get away" with something.

My friend was 62 when they incarcerated him; it affected his health, and he died nearly two years ago at age 66, essentially penniless, as he had to pay every extra dime he obtained into a restitution fund. It didn't make any difference to the state that he had never seen a penny of the money and had lost everything; they had their example set.

Do NOT fool around with taxes...

JDgreen227 · Mar 9, 2004

I'm sincerely sorry to learn of the death of your friend and his ordeal, but thank you for sharing the story of his experience.

lamarbur · Mar 9, 2004

Just amazing how far things can get. Your friend lost everything over a judge's rule and finally life was shortened.. what ever happen to that judge? Did he/she understand what their ruling ultimately caused?

OkeeDon · Mar 9, 2004

"what ever happen to that judge?"

There's a lot to the story I left out for the sake of brevity. At one time, my friend was chairman of the local Economic Council, president of the Chamber of Commerce, and even ran (unsuccessfully) for Mayor. As a result, all of the judges knew him well and recused themselves. After a delay of nearly a year, they finally succeeded in getting a Judge to hear the case -- a Juvenile Court Judge from another county.

I was there as a character witness. The Judge busied himself with paperwork during the testimony and paid no apparent attention. There was no jury. At closing, the prosecutor asked for two years. The Judge looked up, said, "OK, two years." The gavel came down and my friend was led away in handcuffs. I took his wife home.

The original judge in the civil suit did find for my friend, and tried to have the trustee called to account, but the trustee had absconded to a Caribbean island, and the state declined to try to extradite.

Joeinindy · Mar 9, 2004

You brought this situation on yourself by trying to chisel every last nickel out of the dealers. Take the blame and pay up.

OkeeDon · Mar 9, 2004

I don't agree. All the dealer had to say was, "No." There is nothing wrong with trying to get the best deal. There is no reason to pay more than you have to. He didn't ask the dealer to cheat on the tax; he just asked the dealer to match a price he had gotten elsewhere. He would have preferred the dealer to lower the price and then pay the sales tax on the lowered amount; it was the dealer who tried to both eat his cake and keep it.

shvl73 · Mar 9, 2004

I'll disagree, I think both the dealer & customer thought they could get away with it. Remember, he was looking to buy out of state to avoid the tax. I'm not sure of Virginia tax law, however I believe the customer would have the responsibility for paying the tax on out of state purchases, something he has led us to believe he was not going to do. The Virginia dealer thought, rather than lose a sale, he would assist in the deceit while the customer knowingly went along. I'm not so sure the Maryland dealer wasn't doing the same thing, again with customer knowledge & approval.

stuart · Mar 9, 2004

I believe I would not sign any form, nor pay any sum of money to anyone at this time. I might contact my dealer on phone and advise them how upset I am and that I expect them to pay any sums they did not collect from me when I purchased the tractor. Perfectly reasonable to assume that the dealer reduced his price by the amount of the tax in order to make the sale. They are ultimately responsible to make sure they have collected the tax and remitted it to the State. You are not. If the State sends you this notice I would deal direct with them.

puter · Mar 9, 2004

Duane -

It occurs to me, if you're thinking about buying additional implements, that this is a great time to go shopping. Consider going back to the dealer, and in a non-confrontational, non-public way suggest "things didn't work out the way we hoped." Then, offer to pay the sales tax (make sure you get your corrected invoice) but tell him there's a few additional things you need and that you'd like them at cost.

You end up paying the tax you owe but have it at least partially offset by the margin of your additional purchases, the dealer doesn't have any out-of-pocket expenses and the state goes away happy. Perhaps most importantly, you salvage what may prove later to be an important dealer relationship...

zuiko · Mar 9, 2004

Dont forget in this whole thing that they may have already paid that amount to the state. Another reason not to go blindly sending in a check to the state.

texaslandman · Mar 9, 2004

TXDON, I was at a dealer in Tyler TX the other day, he quoted me a tractor price. I said, I guess that is plus sales tax. He said, no tax, it is farm use. I said, I think I'd have a hard time proving farm use.

He said you have 7.5 acres and grow vegetables in your garden for human consumption, that will pass the test!

Do you know the TX rules on qualifying for sales tax exemption for farm use?

Oh, by the way, I'm trying to buy a 20-30 HP tractor.

Gary

riptides · Mar 9, 2004

Whoa!

I'd have to say the final say in land use is what is recorded on the platt at the court house. Don'tch think?

My whole surrounding area is farms, and zoned RA rural agricultural. But my development is residential. Even though we have horses and barns and critters and tractors.....

Sigh..........
-Mike Z.
/forums/images/graemlins/confused.gif

frank_f15 · Mar 9, 2004

( He said you have 7.5 acres and grow vegetables in your garden for human consumption, that will pass the test!
)

don't think that would hold up, think the dealer is just trying to make a sale with that line, once he puts that on the invoice , he is just doing what u told him "your are a farm" not for him to prove it one way or the other, so u would be stuck holding the bag. pay the tax or take a chance , your choice!

Rick Jay · Mar 9, 2004

puter,

I think your idea to get a good deal on implements sounds like an interesting compromise, assuming he needs the implements and that the dealer will play along.

I just hope the dealer collects the tax on the implements! /forums/images/graemlins/grin.gif

~Rick

Rick Jay · Mar 9, 2004

drcollie,

I'm sorry to hear that you found yourself in this predicament. I've been following this thread since you first posted it, but I've been a bit hesitant to comment. I've been ridiculed in the past for pointing out to folks that such sales are not "tax free". If you live in a state with a "use tax", which I believe is every state with a sales tax, you will owe a tax on its purchase.

Massachusetts has included the "Use Tax" line on the state income tax return as of last year. I have no idea what "behind the scenes" data exchange goes on with the various state D.O.R.'s and businesses, but it has to be something that is getting easier and easier to track, especially on big ticket items.

I can't offer any specific advice, but I echo the recommendations of not trying to play games with the state Dept. of Revenue. In their eyes, you're guilty until proven innocent and they can make your life miserable.

Best wishes for a painless resolution to this problem.

~Rick

BillG_in_TX · Mar 9, 2004

Gary,
From the Texas Sales Tax Exemption FAQ page:

6. What are exempt uses?

Generally, it means that there are certain uses of a product that are exempt from sales and use tax. For example, the sale of a tractor is taxable, but the sale is exempt if the tractor will be used in commercial farming. It is the certain use of that tractor that makes the sale exempt.

Farmers and ranchers are not generally exempt from sales and use tax. Some materials and equipment are exempt if used for farm or ranch purposes. Some examples include animals, seeds, feed for farm and ranch animals, machinery and equipment if used for farming or ranch work.


I think two tests that would be applied by the tax auditor are: 1) Do you have an ag exemption on the land? and 2) Do you sell what you produce?

jfdlaw · Mar 9, 2004

I believe there is a legitimate difference between an Internet Purchase, which I believe in most states does not require sales tax .

 I don't believe the above statement is true. Most states want you to pay a sales tax on anything you buy, but will give you a credit for sales tax you paid in another state. If you bought something in a 5% state and brought it home to your 8% state, your state would expect you to pay the 3% difference.

Here in NY they just amended the state tax returns to include a line for sales tax for items purchased over the internet for which tax was not collected by the seller. They even suggest an annual amount based on your gross income if you didn't keep track last year. I'm guessing entering $0 almost guarantees an audit. I'm entering the suggested annual amount just to keep the state away.