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Overview

A Company based in the Northeastern United States, a leader in the eye health industry, maintains an order fulfillment/manufacturing facility in the Commonwealth of Virginia. Having recently completed a Virginia sales & use tax audit, the company received an assessment letter totaling over $300K in tax, interest and penalties in excess of $300,000. The assessment was primarily a result of the company not self assessing use tax on various materials and supplies included in their shipments from their Virginia facility, as well as, not charging applicable tax on their sales of interocular lenses to customers located in Virginia. 

 

 

Challenge

Altus Group was engaged at the conclusion of the audit process to review the assessment notice and related audit work papers to determine if an appeal of the assessment would be cost beneficial to the company. As part of our scope of work, we reviewed all data provided to the Commonwealth during the audit, as well as the detailed audit report that is issued with all sales & use tax audits in Virginia.  Based on our experience and knowledge relating to the eye care industry and the Virginia State sales & use tax regulations, our analysis concluded that the facility located in Virginia was more than a “pick, pack and ship” facility, as the auditor characterized it. 

 

Solution

The characterization of manufacturing facilities under Virginia law clearly encompassed our client’s Virginia operations. By focusing on the legal definitions and analogizing to prior appeal findings, we were able to prepare an argument supported by Virginia statutes and regulations, as well as FDA regulations, that defended the Company’s position that the facility was, in fact,  a manufacturing facility as defined by the Virginia Commonwealth. Since the facility rose to the level of a manufacturing facility, several of the purchases identified as taxable by the Virginia auditor for use at this facility were exempt from Virginia sales & use tax. 

Also, by providing additional supporting documentation in the appeal affidavit, Altus was able to demonstrate that the sale of interocular lenses, which the auditor assessed tax upon, were in fact exempt from Virginia sales & use tax.

 

Result

After filing the appeal, we met with Commonwealth to review our appeal affidavit, and arranged a tour of the facility with the appeal analyst so that she could fully envision the manufacturing activities at the facility. This tour had a significant impact on the analyst, as she noted during the tour that the manufacturing activities were “obvious”, a fact that the original auditor missed because a tour was never contemplated. As a result of our analysis and negotiations with the Commonwealth, we obtained a near 50% reduction of the assessment, a net savings of nearly $150K.

Services provided

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