Tax Type
Retail Sales and Use Tax
Description
Basis of Tax
Topic
Basis of Tax
Computation of Tax
Property Subject to Tax
Taxability of Persons and Transactions
Date Issued
09-12-2001
September 12, 2001
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****
This is in response to your letter requesting a ruling on the application of the retail sales and use tax to purchases of shelving and signage by Virginia retailers for in-store use. I apologize for the delay in the department's response. Copies of cited sources are enclosed.
FACTS
Your client (the "Company") manufactures clothing products that are sold on a wholesale basis to distributors and retailers. The Company offers a co-operative advertising rebate plan ("co-op plan") to retailers. The co-op plan assists retailers in the purchase of display shelving and visual signage to promote the retail sale of the Company's products. You indicate that these items are not designed for permanent attachment to the realty.
Participating retailers accrue "rebates funds" at a rate of 2-4% on qualifying wholesale purchases of the Company's clothing products. Rebate funds are held in an individual retailer co-op account until applied to future purchases from the Company of media advertising, visual signage or display shelving. Retailers may also pay the sales tax owed on signage or shelving "using monies from the co-op fund."
The Company purchases shelving and signage from various manufacturers and arranges for these items to be drop shipped directly to Virginia retailers or reshipped from the Company directly to Virginia retailers. The Company invoices the Virginia retailers for these items by utilizing the rebate funds, if any. For example, you indicate that shelving costing $100 is billed for $35 if rebate funds of $65 are applied. You describe the rebate funds as a discount to the purchase price, such as a 65% discount in the above example. If no rebate funds are available, the retailer must pay the full amount of the $100 charge.
You request a ruling that the shelving and signage may be purchased tax-exempt by the Company under the resale exemption. You also request a ruling that the tax applies only to the final "discounted" sales price, such as $35 in the above example. You further request that the department rule that the Company is entitled to a refund of the sales tax that it has paid on the "purchase" of resale products but must collect the sales tax from retailers on "future" sales.
RULING
Code of Virginia § 58.1-603 imposes the sales tax on "the gross sales price of each item or article of tangible personal property when sold at retail or distributed in this Commonwealth." Code of Virginia § 58.1-602 defines "sales price," in pertinent part, as "the total amount for which tangible personal property or services are sold, . . . and includes any amount for which credit is given to the purchaser, consumer, or lessee by the dealer . . . ."
The rebate funds accrue to the Virginia retailers. As such, it is the retailer's own funds that are credited to the gross sales price of shelving and signage. The combination of these rebate credits and other payments received for the sale of the shelving and signage represents the taxable sales price. Based on the information presented, the rebated funds do not represent a discount of the sales price. The Company does not in any way reduce the gross sales price of the shelving or signage. Rather, the rebates are analogous to a payment or credit applied to the sales price of these articles.
Based on the foregoing, the retail sales and use tax applies to the gross sales price of the display shelving and visual signage when sold at retail, without any reduction in the taxable sales price for rebate funds applied to the sale price of these articles. Provided these items are sold at retail and not included in a wholesale transaction, the resale exemption may apply to the purchase of these items by the Company.
Refund Request
In regard to the refund request, the facts presented do not indicate whether the Company has been billing the sales or use tax to the Virginia retailers. If the sales or use tax is collected from the customers, then no refund is due the Company.
If the sales or use is not being collected from retail customers but is being paid directly to vendors or is self-accrued by the Company on resale items, then the Company may be entitled to a refund provided it has not (i) voluntarily registered as a dealer for sales or use tax collection or (ii) established sufficient physical presence in Virginia as to require registration as a dealer for the collection of the sales or use tax. See Code of Virginia §§ 58.1-612 and 58.1-613. A dealer becomes directly liable for the tax if it fails to collect the sales or use tax as required. See Code of Virginia § 58.1-625.
Sales or use tax collected by a dealer is deemed held in trust for the Commonwealth, not the dealer. See Code of Virginia § 58.1-625. This trust provision applies to refunds of the sales and use tax improperly or erroneously collected. For example, sales and use tax erroneously collected by a dealer must be returned to the consumer before a refund may be issued by the department to the dealer. See Title 23 of the Virginia Administrative Code 10-210-3040.
In the event that the Company is only registered to report the consumer use tax, it is not clear why the Company would be accruing such tax on items purchased for resale purposes only, unless the Company is not actually reselling the shelving or signage. In such instance, the Company would be the taxable user or consumer of these items. Thus, a refund would not be available, as the Company would be the party ultimately liable for the tax.
As shown above, your refund request does not disclose sufficient detail as to billing practices, tax registration, and nexus of the Company. There may also be other important facts that you have not disclosed in this matter. For these reasons, I would encourage the Company to seek verification by the department's audit staff of any refund which it may propose. As the facts presented are incomplete, I do not find sufficient basis to approve the Company's refund request.
If you have any questions about this response, please contact ***** of the department's Appeals and Rulings Office at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
ARO/33959R
Rulings of the Tax Commissioner