Tax Type
Retail Sales and Use Tax
Description
Assessed use tax on combined shipping and handling charges billed on purchases from various vendors
Topic
Accounting Periods and Methods
Assessment
Subtractions and Exclusions
Date Issued
06-06-2008
June 6, 2008
Re: § 58.1-1821 Application: Retail Sales and Use Tax
Dear *****:
This will reply to your letter in which you seek the correction of a retail sales and use tax assessment issued to ***** (the "Taxpayer"), for the period September 2004 through August 2007.
FACTS
The Taxpayer was audited by the Department and assessed use tax on combined shipping and handling charges billed on purchases from various vendors. The Taxpayer has provided documentation obtained from several vendors that shows a breakdown of the shipping and handling components of the charges at issue. Other vendors have provided statements that the shipping and handling charge is actually a shipping charge only.
DETERMINATION
The Virginia retail sales and use tax is computed based upon the "sales price" of an article. Sales price is defined in Va. Code § 58.1-602 as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale . . . ." Virginia Code § 58.1-609.5 3 provides an exemption from the retail sales and use tax for separately stated transportation charges. Title 23 of the Virginia Administrative Code (VAC) 10-210-6000 interprets this exemption and states that when transportation charges are not separately stated, or the charges are combined with handling or other taxable charges, they become part of the sales price of the property and are subject to sales tax. Paragraph B of this regulation further states that transportation and delivery charges do not include handling charges.
It has been the longstanding policy of the Department that handling charges are taxable as a service in connection with the sale of tangible property. In addition, it is the policy of the Department that when handling charges are billed with exempt shipping charges in a single "lump sum" charge, the total amount is taxable. By characterizing an exempt shipping charge as shipping and handling on its invoices, the seller has not separately stated the charge as required by law. Thus, the charge is taxable.
Public Document (P.D.) 96-119 (6/4/96) discusses a taxpayer that was audited and assessed use tax on lump sum shipping and handling charges. The Tax Commissioner agreed to adjust the audit assessment based on written documentation from the taxpayer's suppliers that set out the standard handling charges that were included in the combined shipping and handling charges. Consistent with P.D. 96-119 and based on the documentation provided by the Taxpayer, the shipping and handling amounts in the audit have been adjusted or removed. However, the remaining purchase amounts in the audit must be extrapolated over the audit period because the Taxpayer's purchases were sampled. The Taxpayer computed its tax liability without extrapolating the remaining exception amounts based on the sample used in the audit. A schedule is enclosed that shows the calculation of the Taxpayer's remaining liability.
The Taxpayer's assessment has been adjusted in accordance with the enclosed computation schedule. The Department's records indicate that the Taxpayer's current balance due is *****, which includes accrued interest through the date of this letter. The Taxpayer should pay this amount within 30 days from the date of this letter. If payment is not received within this time, an updated notice of assessment with accrued interest will be issued to the Taxpayer.
The Code of Virginia sections, regulation and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions concerning this response or need further assistance, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-1982082941S
Rulings of the Tax Commissioner