February 21, 2023
Re: § 58.1-1821 Appeal: Retail Sales and Use Tax
Dear *****:
This will respond to your letter in which you seek correction of the retail sales and use tax assessment issued to ***** (the “Taxpayer”) for the periods August 2018 through July 2021. I apologize for the delay in responding to your request.
FACTS
The Taxpayer, a dealer that sells various plumbing and heating supplies, was audited for the period at issue. Under a first generation audit, the auditor determined that the Taxpayer did not charge sales tax on a credit card fee charged to its customer in connection with the sale of tangible personal property. The Department issued an assessment for the unpaid tax liability and applicable interest. The Taxpayer timely appealed, alleging the credit card fee is not subject to tax.
DETERMINATION
Virginia Code § 58.1-603 imposes the sales tax on, among other things, the gross sales price of certain taxable services and each item of tangible personal property sold at retail or distributed in Virginia. Virginia Code § 58.1-602 defines sales price to include “the total amount for which tangible personal property or services are sold, including any services that are a part of the sale…” Accordingly, any charge in connection with the sale of tangible personal property is considered taxable, unless it is specifically exempt pursuant to another section of Chapter 6 of Title 58.1 of the Code of Virginia. In this case, there is no such exemption applicable to credit card fees.
The Taxpayer asserts the charges should be exempt pursuant to the true object test found in Title 23 of the Virginia Administrative Code 10-210-4040. According to this regulation, transactions involving both the sale of tangible personal property and the provision of services, generally are either taxable or exempt on the full amount charged based on whether the “true object” of the transaction is the provision of an exempt service or a taxable retail sale. The true object of the transaction, in this case, was the retail sale of tangible personal property because the credit card fee was clearly not the customer’s primary purpose for entering into the transaction.
Similarly, the Taxpayer argues that the fee is related to accounts receivable rather than the sale of tangible personal property because it is only charged to those customers who elect to pay via credit card. However, the charge is made in connection with the retail sale of tangible personal property and must be included in the taxable sales price of the transaction in accordance with Virginia Code § 58.1-602.
As such, the assessment is upheld and remains correct as issued. Because the Taxpayer has paid the assessment in full, no further action is required.
The Code of Virginia sections and regulation cited are available online at www.tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****, or via email at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/4128-C