Tax Type
Retail Sales and Use Tax
Description
Cigarettes sales that are subject to a tobacco manufacturer's buy-down program
Topic
Computation of Tax
Property Subject to Tax
Returns/Payments/Records
Date Issued
08-11-2004
August 11, 2004
Re: Request for Ruling: Retail Sales and Use Tax
Dear *****:
This is in response to your letter, submitted on behalf of your client (the "Taxpayer"), in which you request a ruling on the application of the sales and use tax to the retail sale of cigarettes that are subject to a tobacco manufacturer's buy-down program. I apologize for the delay in the Department's response.
FACTS
The Taxpayer is a retailer that operates convenience stores in Virginia. The Taxpayer contracts with tobacco manufacturers to participate in cigarette buy-down programs. A buy-down program is a common incentive program offered by tobacco manufacturers to increase sales of certain cigarettes at retail stores. The buy-down agreements are entered into by the manufacturer and the retailer. The agreements require the retailer to reduce the selling price of certain brands of cigarettes for a defined period of time. To receive the buy-down incentive, the retailer must submit a report to the manufacturer at the end of the buy-down period that provides the number of cartons sold during the period. Upon receipt of the report, the manufacturer will reimburse the retailer the difference between the regular retail price and the net buy-down selling price. During the promotional period, the consumer remits the promotional discount price for the cigarettes subject to the buy-down promotion. You request a ruling with regard to four issues.
RULING
Questions 1 and 2: Is the client responsible for reporting taxable sales/gross proceeds using the gross retail price or the net selling price when reporting and remitting sates/use tax to your state on sales of cigarettes subject to the buy-down promotion? Is the client responsible for collecting and remitting sales/use tax from its customers on the gross retail price or the net selling price for sales of cigarettes subject to the buy-down promotion?
Virginia Code § 58.1-603 imposes a sales tax upon the sales of tangible personal property sold in the Commonwealth. Virginia Code § 58.1-602 provides, in pertinent part, that the sales price is the total amount for which tangible personal property or services are sold, including any services that are a part of the sale."
Based on the facts presented, there are two separate transactions involving the Taxpayer (i.e., the retailer). In one transaction, the Taxpayer sells cigarettes to its customer for a discounted price ("net selling price"). The net selling price represents the total amount for which the cigarettes are sold at retail and is the only consideration the customer gives to the retailer for the cigarettes. In this instance, the Taxpayer is required to report taxable sales using the net selling price. The Taxpayer would be responsible for collecting tax from its customers based on the net selling price.
The buy-down incentive paid by the manufacturer to the retailer is separate and distinct from the retail sale transaction. The transaction is between the retailer and the manufacturer, not the retailer and the consumer. Accordingly, the incentive paid by the manufacturer to the retailer is not subject to the retail sales and use tax.
Question 3: If you determine that the buy-down promotional discount is included in the taxable sales base, would your response differ if the customer were provided a receipt for the net selling price rather than the buy-down promotional breakdown (as described above)? In this case, the customer would be unaware of the manufacturer's buy-down program.
As previously stated, the Taxpayer is required to charge, collect and remit tax based on the net selling price. Virginia Code § 58.1-625 and Title 23 VAC 10-210-340 require that the tax be separately stated on the record of the transaction. Because the buy-down discount is a transaction between the retailer and the manufacturer, and not between the retailer and the consumer, the sales receipt should reflect the actual amount charged the customer. The gross retail price and the buy-down discount should not be reflected on the customer's sales receipt.
Question 4: Would the accounting treatment on the client's books and records have any impact on the determination of the sales/use tax treatment?
The Taxpayer's books and records should reflect the tax due on the net selling price charged to the Taxpayer's customers.
This ruling is based on the facts provided as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia sections and regulations cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions about this response, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/49068P
Rulings of the Tax Commissioner