Virginia: Taxpayer Owed Sales Tax on Transactions with an Affiliate

The Virginia Department of Taxation recently ruled (PD- 19-82) that a taxpayer was liable for use tax on computer equipment purchased and leased from an affiliate. The taxpayer, a car dealership, argued that it reported under the same FEIN as its affiliate, making the transactions internal intercompany transactions exempt from sales and use tax. The Commissioner disagreed. Under Virginia law, affiliated corporations are treated as separate entities for sales tax purposes, and taxable transfers between them are taxable. Furthermore, the taxpayer had not provided documentation evidencing that it reported under the same FEIN as its affiliate. In this case, the affiliate had applied a markup to the computer equipment and billed the taxpayer for the total price without charging sales tax. Although the seller was legally required to collect and remit the sales tax, the affiliate had failed to do so, and the taxpayer was liable for use tax on the total price of each transaction. Please contact Sarika Bakshi at 703-286-8467 with questions on this ruling.